The selloff saw Benchmark Treasury yields plunge back below 1.5% as the Asian session opened on Friday
Stocks in the Asia Pacific were down Friday morning, with global bonds starting to stabilize from an aggressive selloff that led steep losses in U.S. shares.
Japan’s Nikkei 225 fell 2.29% and South Korea’s KOSPI tumbled 2.67%, while Australia’s ASX 200 dropped 1.88%.
Hong Kong’s Hang Seng Index shed 2.18%. The city expects its first batch of the Pfizer Inc./ BioNTech SE COVID-19 vaccine on Saturday.
China’s Shanghai Composite declined 1.62% while the Shenzhen Component shed 1.31%.
The selloff saw Benchmark Treasury yields plunge back below 1.5% as the Asian session opened on Friday, after the ten-year Treasury yield gained as much as 23 basis points to 1.6% overnight. The surge gathered pace, with holders of mortgage securities being forced to offload government bonds.
The ten-year U.S. yield adjusted for inflation jumped to its highest level since June 2020 and sounded a warning for riskier assets that benefitted from the ultra-easy monetary policy amid the pandemic.
The fixed income rout is shifting into a more lethal phase for risky assets. The rise in yields has long been mostly seen as a story of improving growth expectations, if anything padding risky assets, but the overnight move notably included a steep lift in real rates and a bringing forward of the U.S. Federal Reserve’s lift-off expectations, Westpac head of rates strategy Damien McColough told Reuters.
As hopes for a global economic recovery continue to grow, investors are shifting from the pandemic era winners to those expected to benefit from an end to lockdowns. However, shares of GameStop Corp. doubled at one point during the previous session before ending 19% higher.
It’s all about interest rates. Tech has been a relative outperformer. As it led on the way up, it will likely lead on the way down too, Schwab Center for Financial Research vice president of trading and derivatives Randy Frederick told Bloomberg.
Earlier in the week, Fed Chairman Jerome Powell reassured investors that the central bank would continue its ultra-easy monetary policy and would overlook the short-term rise in inflation in his testimonies before Congress. However, the market has almost fully priced in a first-rate hike by the end of 2022.