BAC Bank of America Corporation

By Riva Gold 

Global stocks started the week in retreat as long-dated government bonds plumbed their lowest levels since the U.K. referendum.

The Dow Jones Industrial Average fell 29 points, or 0.2%, to 18109. The S&P 500 slipped 0.1%, and the Nasdaq Composite was down less than 0.1%.

Upbeat earnings reports helped cushion the U.S. market from the global declines. Shares of Hasbro gained 6.5%, while shares of Bank of America gained 0.1% after both companies posted stronger-than-expected earnings.

Energy shares fell the most in the S&P 500, declining 0.5% as the price of oil dropped below $50 a barrel. U.S. crude fell 1.2% to $49.75 a barrel.

The Stoxx Europe 600 fell 0.7%, though bank shares were a rare bright spot. Shares in Asia closed slightly lower.

In bond markets, the 10-year U.K. gilt yield climbed to as high as 1.221% during early European trading hours before declining, while the yield on the 10-year German bund climbed to as high as 0.102%, around its highest since the June 23 U.K. referendum.

The yield on the 10-year U.S. Treasury note rose to as high as 1.814%, its highest since early June, before retreating to 1.776%, according to Tradeweb. Yields move inversely to prices.

While the recent rise in long-dated bond yields "feels like it's U.K.-led," this looks like a much more widespread reassessment of monetary and fiscal policy around the world, said James Athey, investment manager at Aberdeen Asset Management.

"Officials continue to signal a shift from monetary to fiscal stimulus," he said, which should suggest an environment where yields are higher and the yield curve is steeper.

Outside the U.K., investors had also grown concerned in recent weeks about the European Central Bank's plans for the future of its bond-buying program. The bank holds a meeting on Thursday, with many investors expecting confirmation that it doesn't plan to swiftly end its asset purchase program.

Despite media reports, "We believe the ECB is still committed to its ultraloose monetary policy and that its main target is to fight off deflation," said Jean-François Clément, investment director at Unigestion.

On Monday, Eurostat left its estimate of the eurozone's annual rate of inflation for September unchanged at 0.4%. Rising inflation expectations had chipped away at the value of bonds in recent sessions.

Banks shares in Europe gained as bond yields rose, led by Italian lenders Banco Popolare dell'Emilia Romagna and UniCredit SpA

Investors also focused on comments Friday from Federal Reserve Chairwoman Janet Yellen, who offered an argument for running the U.S. economy hot for a period to boost consumer spending and business investment.

The U.S. central bank meets Nov. 1-2, a week before the presidential election. In an interview with The Wall Street Journal, Boston Fed President Eric Rosengren signaled a willingness to keep interest rates steady in November and wait until mid-December before moving them higher.

Expectations have risen recently for the Fed to raise interest rates later this year, helping send the WSJ Dollar Index to its highest level since March on Friday.

The dollar was little changed on Monday, falling 0.1%. The euro rose 0.2% against the dollar to $1.0995. The dollar was down 0.2% against the yen at Yen103.9930 after rising against the Japanese currency for three straight weeks.

Earlier, shares in Asia mostly trended lower, with Hong Kong stocks among the biggest decliners on news that Chinese authorities detained employees at casino operator Crown Resorts Ltd. for suspected gambling crimes.

The Hang Seng Index fell 0.8%, while shares in Shanghai declined 0.7% and shares in Australia fell 0.8%.

Japan's Nikkei Stock Average gained 0.3%, as financial stocks caught up with Friday's gains in global lenders.

The Bank of Japan took a more optimistic view about the nation's regional economies in a quarterly report released Monday, which could lessen investors' expectations for additional stimulus in the near future.

--Aaron Kuriloff and Ese Erheriene contributed to this article

Write to Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

October 17, 2016 12:39 ET (16:39 GMT)

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