An accelerating selloff in US government bonds is starting to spread havoc across Asia’s financial markets, pushing up borrowing costs, spurring currency-market intervention and driving stocks toward a technical correction.
MSCI’s Asia stock benchmark slipped for a third day, on course for a technical correction. Treasuries extended losses in Asian trading, with yields on the 10- and 30-year notes inching closer to 5%. US equity contracts edged lower after the S&P 500 dropped to a four-month low Tuesday.
The selloff in global debt pushed yields on Japan’s five-year government notes to a decade high. The yen whiplashed in US trading hours after it weakened to levels that some traders suspected would trigger intervention support.
Better-than-expected US employment data reinforced bets that the Federal Reserve isn’t done raising interest rates, unleashing a fresh wave of selling across markets. As investors come around to the view that the policy rate may remain elevated for a longer period, they are recalibrating wagers on everything from stocks to currencies.
“Clearly, there are headwinds to global equities due to the unexpected sharp rise of US bond yields,” said John Vail, chief global strategist at Nikko Asset Management Co. in Tokyo. “Higher bond yields and lower equity prices should slow the US economy, which in turn affects the global economy.”
Dollar Gains
Bloomberg’s gauge of dollar strength ticked up after rising to the highest since November on Tuesday, bolstered by climbing Treasury yields.
Japan’s top currency official Masato Kanda earlier declined to comment on whether any intervention was conducted on Tuesday following the currency’s decline to the weakest level in a year.
“The subsequent rebound in USD/JPY illustrates how difficult it is to change the path of the exchange rate on a sustained basis,” said Tony Sycamore, a market analyst at IG Australia. “Unless US yields start to fall, the best authorities can hope for is to buy time and to slow the speed of USD/JPY’s rise above 150.”
New Zealand’s dollar fell after the central bank kept interest rates unchanged and signaled a subdued growth outlook.
The yield on Chinese investment-grade dollar credit rose to an 11-month high at 6.51%, having climbed more than 100 basis points from May’s low. Spreads, though, remain well within this year’s range. China is in the midst of a week-long holiday.
Fed Bets
The number of available job openings in the US rose to 9.61 million in August from less than 9 million the previous month, according to the Bureau of Labor Statistics. The report drove swaps traders to increase wagers on the Fed raising rates in December to greater than 50%.
Atlanta Fed President Raphael Bostic, who does not vote this year, beat the “higher-for-longer” drum Tuesday, saying the central bank needed to keep rates elevated “for a long time.” He forecast a single rate cut for 2024, toward year-end. His comments came after other Fed policymakers who were also hawkish.
The next key data point for the US labor market will be the monthly payrolls print on Friday.
Elsewhere, oil steadied ahead of an OPEC+ review of the global crude market and a weekly update of US stockpiles. Gold was little changed.
Key events this week:
- China has week-long holiday
- Eurozone services and composite PMIs, Wednesday
- ECB President Christine Lagarde gives welcome address at conference, Wednesday
- US ISM services index, Wednesday
- France industrial production, Thursday
- BOE Deputy Governor Ben Broadbent, Riksbank First Deputy Governor Anna Breman participate at panel discussion, Thursday
- US trade, initial jobless claims, Thursday
- San Francisco Fed President Mary Daly speaks at the Economic Club of New York, Thursday
- Germany factory orders, Friday
- US unemployment rate, nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.3% as of 11:44 a.m. Tokyo time. The S&P 500 fell 1.4%
- Nasdaq 100 futures fell 0.3%. The Nasdaq 100 fell 1.8%
- Japan’s Topix index fell 2%
- Hong Kong’s Hang Seng Index fell 0.7%
- Australia’s S&P/ASX 200 Index fell 0.7%
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro was little changed at $1.0464
- The Japanese yen fell 0.2% to 149.26 per dollar
- The offshore yuan was little changed at 7.3231 per dollar
- The Australian dollar was little changed at $0.6305
Cryptocurrencies
- Bitcoin was little changed at $27,402.63
- Ether fell 0.9% to $1,641.6
Bonds
- The yield on 10-year Treasuries advanced five basis points to 4.85%
- Australia’s 10-year yield advanced 13 basis points to 4.67%
Commodities
- West Texas Intermediate crude was little changed
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Rob Verdonck and Kevin Kingsbury.
