- 10-year Treasury yields rose to a 16-year high above 4.85%
- Yen jumps. Japanese officials have not confirmed the intervention
- The rise in the dollar pushes Asian currencies lower
SINGAPORE (Reuters) – Asian stocks fell to 11-month lows on Wednesday as persistent turmoil in global bond markets pushed U.S. yields to their highest levels in 16 years, challenging equity valuations and worsening appetite for riskier assets generally.
A rise in Treasury yields lifted the dollar to new highs, with only the yen showing some fight amid speculation that Japanese authorities may be intervening behind the scenes.
The yen broke through 150 yen to the dollar on Tuesday afternoon in London before suddenly rising to 147.3 yen.
There was no confirmation from Tokyo, as Japan’s finance minister and chief currency diplomat did not comment directly on the move. The price of the yen in the latest trading reached 149.18 yen to the dollar.
Meanwhile, stronger-than-expected US jobs data sent the 10-year bond yield up nearly twelve basis points on Tuesday and rose another four basis points in Asia, briefly reaching 4.85% for the first time since 2007. .
Even the 10-year Japanese bond yield, set by the Bank of Japan, rose 4.5 basis points to the highest level in a decade despite the Bank of Japan’s offer to buy $4.5 billion worth of bonds on Wednesday.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell more than 1% for the second day in a row. Japan’s Nikkei (.N225) fell 1.8%.
S&P 500 futures fell 0.3%, and European futures fell 0.2%.
“With the risk-free rate going up, people don’t really have to allocate their money away from short-term cash investments,” said Mel Siew, portfolio manager at Muzinich & Co in Singapore. The S&P 500 fell 1.4% on Tuesday.
Since the move was not accompanied by much of a shift in market measures of inflation expectations, US yields in real terms – subtracting inflation – are also at their highest levels in almost 15 years and sucking money from all corners into the dollar.
Bonds across emerging markets in Asia are under pressure, and the Thai baht, Taiwanese dollar, Malaysian ringgit, Indonesian rupiah and Indian rupiah are all at or near their lows, with some central banks stepping in to stem the tide.
Waiting for something to break
The dollar’s rise pushed the euro to its lowest level in ten months at $1.0448 overnight and the pound sterling to its lowest level in seven months at $1.20535.
Both traded near those levels on Wednesday.
As for the yen, it fell beyond the weak side at 149 against the dollar, indicating some doubts about whether the Japanese Ministry of Finance had actually ordered the intervention, although that was enough to calm short sellers.
“We should be cautious towards the pair because it is hovering around levels that are sensitive for the Japanese authorities, even after the unknown shock,” said Ryota Abe, an economist at Sumitomo Mitsui Banking Corporation in Singapore.
At US$0.6304, the Australian dollar was held near an 11-month low, while the New Zealand dollar was just above a similar level after the central bank left interest rates unchanged and gave little sign of an imminent hike.
“Right now, the FX market is a spectator, watching Treasuries and waiting for something to break,” said Kit Jukes, a strategist at Société Générale.
Federal Reserve officials believe that rising yields on long-term US Treasury debt have not set off alarm bells yet.
In commodity markets, a stronger dollar helped keep oil prices in check, and higher yields also weighed on gold.
Brent crude futures settled at $90.87 per barrel in the latest trading, after hitting an 11-month high of $97.69 last week.
Spot gold touched a seven-month low of $1,814 an ounce on Tuesday and was last trading at $1,819.
Tom Westbrook reports. Editing by Jamie Freed, Kim Coghill and Simon Cameron-Moore
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