Asia stocks at one-month lows amid surging bond yields

by Jonathan Adams
Asia stocks

MSCI’s broadest index of Asia-Pacific shares outside of Japan dropped to 684.52, its lowest since February 1

Stocks in Asia slipped to one-month lows on Friday as rising US Treasury yields again rattled equity investors while the dollar hit a three-month high, dragging the Japanese yen down.

Energy markets were affected by the volatility as well, with oil prices adding to big gains overnight after the Organization of Petroleum Exporting Countries (OPEC) and its allies agreed to mostly maintain their supply cuts in April as they await a more solid recovery from the pandemic.

Australian stocks declined over 1%, Japan’s Nikkei share average fell 1.6 per cent and shares in Seoul dropped 1.4 per cent, and the bluechip CSI300 index fell 1.5 per cent.

That sent MSCI’s broadest index of Asia-Pacific shares outside of Japan to 684.52, the lowest since February 1.

E-Mini S&P futures lost 0.5 per cent.

US stocks fell on Thursday after Federal Reserve Chair Jerome Powell disappointed some investors by not indicating that the Fed might step up purchases of long-term bonds to hold down longer-term interest rates.

The Nasdaq Composite fell 2.1 per cent, taking it down more than 10 per cent from its record close on February 12 and putting it in correction territory.

Even though Powell made it clear that the Fed was not close to changing its ultra-loose monetary policy stance any time soon, some analysts still worried rising Treasury yields could herald higher borrowing costs, thereby limiting the fragile US economic recovery.

The market was seemingly looking for Powell to push back harder on the recent increase in yields, said Ray Attrill, head of forex strategy at National Australia Bank.

Volatility seen in local interest rate markets yesterday with another large increase in long-term rates and government bond yields has set the scene for a choppy market again today if overnight developments are any guide, Attrill said.

Bond investors with a bearish view of Treasuries took heart in Powell’s remarks and sold the notes. The yield on 10-year Treasuries climbed above 1.5 per cent to as high as 1.5727 per cent, but still below a one-year high of 1.614 per cent struck last week.

The yield curve steepened on rising yields, with the gap between two- and 10-year yields widening by another 6.3 basis points overnight.

Rising Treasury yields boosted demand for the dollar. The dollar index climbed to a three month high of 91.734.

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