Asia shares jittery as U.S. bond yields rise

by Jonathan Adams
bond yields rise

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.24%, Nikkei stock price index shed 1.13%, and Hong Kong shares declined 0.1%

Share markets were jittery in early Asia trading on Wednesday as trading was hit by a step-up in U.S. Treasury yields as well as volatile oil prices in the face of price-cooling moves by the United States and other nations.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.24%, while Japan’s benchmark Nikkei stock price index shed 1.13%, as it returned from holiday.

Oil steadied a day after gaining 3% to a one-week high, even after the U.S. said it would release millions of barrels of oil from strategic reserves in coordination with China, India, South Korea, Japan and Britain to try and cool prices after repeated calls for more crude failed to sway OPEC+ producers.

Brent crude futures reversed early losses to gain 0.15% to $82.43 a barrel and U.S. crude futures advanced 0.33% to $78.76 a barrel.

There’s a lot going on at the moment, said senior Asia economist Carlos Casanova at Swiss private bank UBP.

10 year yields are rising, and the U.S. dollar is strong, which is a little bit disruptive for Asian markets as a lot of the currencies (apart from the Chinese yuan) will depreciate and there will be some outflows on the back of widening real rate differentials, he said.

However, Chinese asset classes have been holding up relatively well, he said, attributing the strength to the People’s Bank of China removing several hawkish references from Friday’s quarterly monetary policy support, indicating central bank support later this year or early next, which will provide a floor for equities.

Chinese blue chips were last flat 0.1% and are up nearly 0.5% so far this week, versus a near 1% decline this week in the Asian regional benchmark. Hong Kong shares shed 0.1%.

Overnight, yields on 10-year U.S. Treasury notes rose more than 5 basis points to 1.684% while yields on 30-year Treasury bond gained 6 basis points. Two-year U.S. Treasury yields slipped having hit their highest level since March 2020 on Monday.

There’s a risk that the Fed may speed up tapering and that in turn means the timetable for tightening may be brought forward, contributing to the stronger dollar, said currency strategist Sim Moh Siong at Bank of Singapore.

Investors will be scrutinising the minutes of the U.S. Federal Reserve policy committee’s November meeting to be published later in the day for signs that the pace of tapering could accelerate.

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