LONDON – World stocks climbed to five-week highs on Wednesday as investors ignored a broadening selloff in global bond markets fueled by a combination of soaring inflation and hawkish comments from US policymakers.

Even though two-year US Treasury yields are up 73 bps so far in March and set for their biggest monthly jump since 2004, investors have been relatively sanguine about the implications of higher yields on stock market valuations.

MSCI's broadest gauge of world stocks rose 0.2 percent to a Feb 17 high, a level last seen days before the conflict in Ukraine. An Asian gauge rose 1 percent to its highest since early March.

European stocks also rose, with a pan-European equity benchmark hitting a new 1-month high in early London trading. US stock futures signalled small gains.

"It is almost as if the negative impacts of inflation, rising interest rates and the uncertainties are no longer of concern," said Stuart Cole, head macro economist at Equiti Capital, who added that investors were focusing on stocks that could withstand the high inflationary environment.

Technology shares which have had an inverse correlation with higher interest rates in the past were the biggest drivers of broader market gains, with a Hong Kong gauge of technology stocks rising to a three-week high.

E-commerce giant Alibaba, which recently expanded a buyback program, rose 6 percent and in Tokyo out-of-favour tech investment firm SoftBank Group rose 7 percent. The main US tech index ended up 2 percent overnight cutting its year-to-date losses to 10 percent from 20 percent at mid-March.

"(Stocks) sold off too much and you see a bit of a rally," said Jun Bei Liu a portfolio manager at Tribeca Investment Partners in Sydney, but she added it had the flavour of hedge fund short covering rather than new money piling in.

Bond selloff

But the bulk the action was focused in the bond markets, with two-year US yields pausing for breath at a six-year high after a massive rise this month.

The sharp rise in short-dated yields flattened the gap between two and 10-year US yields to its lowest levels since the coronavirus pandemic hit global markets in March 2020. An inverted yield curve is widely seen as a predictor for future US recessions.

The selloff in short-dated yields prompted Fed fund futures to price in an aggressive 190 bps through the remainder of the year after a 25 bps rate hike last week. Futures were nearly pricing in the probability of a 50 bps hike in May.

The selloff in US markets reverberated elsewhere with German and British bond yields climbing, with soaring British inflation readings also a factor. Data showed inflation rose to a new 30-year high of 6.2 percent last month.

Currency market activity continued to be relatively subdued with major FX pairs trading in tight ranges, confirming the lack of any clear directional trends with the Japanese yen the only notable outlier.

Against the US dollar, the Japanese unit is now trading below 121 yen after Bank of Japan Governor Haruhiko Kuroda said it was premature to debate the exit from ultra-loose monetary policy.

Commodity markets have been kept on edge by anticipated supply disruptions from the conflict in Ukraine and were firm against a lack of tangible progress toward peace.

Oil steadied at lofty heights, with Brent crude futures up 1 percent at $116.67 a barrel and US crude up 1 percent to $110.34.

Grain prices remained supported by supply concerns, especially for delivery later in the year.

"Those gains are a sign that the market is setting itself to be without much Black Sea supply well into season 2022," said Tobin Gorey, an agriculture commodity strategist at Commonwealth Bank of Australia in Sydney.