Hong Kong: The relentless surge in US Treasury yields boosted the dollar and spread panic to all asset classes as investors grappled with mark-to-market losses.
Risk aversion, which was until recently restricted to the technology sector, rapidly proliferated into all sections of the market with the Australian central bank forced to make an unscheduled bond buyback to stanch the bleeding.
The US dollar rose 0.5% to 90.5 against a basket of currencies and the yields on the 10-year Treasury note surged to a one-year high of 1.614% before easing. They were last seen around 1.49%.
Japan’s Nikkei 225 index dived 3.99%, Australia’s S&P ASX 200 plunged 2.35%, Hong Kong’s Hang Seng index tumbled 3.43% and China’s CSI300 dropped 2.43%. Regionally, the MSCI Asia Pacific index cratered 3.28%.
“This bear steepening suggests that while investors are taking global central banks at their word that they will remain accommodative over the near term, they are betting that policymakers will find themselves behind the inflation curve, and be forced to hike more aggressively further out into the future,” said BCA Research analysts in a note.
The dollar’s spike brought down gold prices with the precious metal falling 0.4% to $1,765 per ounce.
Some of the pressure in the bond market sell-off is a reflection of higher inflationary expectations and stronger growth prospects while Federal Reserve officials see rising yields as a sign of greater optimism. This dichotomy will be watched in coming days as three Fed officials speak in public forum next week.
“The Fed is set to become more concerned now about the rapid move in yields as tighter financial conditions may hurt the US recovery,” said Mansoor Mohi-uddin, Chief Economist at Bank of Singapore.
“We expect a shift in the Fed’s tone will start to cap yields and stop 10-year Treasury rates surging further towards 2.00% in the next few months.”
Also in focus next week will be the release of worldwide PMI surveys, which will provide an early snapshot into economic growth and inflation trends midway through the first quarter.
“The spectre of inflation has continued to rattle bond markets, and higher yields have the potential to cause problems for policymakers eager to keep borrowing costs low,” said Chris Williamson, Chief Business Economist at IHS Markit, while pointing out the focus on the Reserve Bank of Australia’s policy decision next week.
“Markets will be looking for any signs that the central bank could be wavering from its commitment to keeping the policy rate low for several years despite recent signs of sharply rising price pressures and solid economic growth.”
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- Japan’s Nikkei 225 index dived 3.99%
- Australia’s S&P ASX 200 plunged 2.35%
- Hong Kong’s Hang Seng index tumbled 3.43%
- China’s CSI300 dropped 2.43%
- The MSCI Asia Pacific index cratered 3.28%.
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