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Asian stocks retreat from record highs as bond yields rise

bond yields rise

Australia’s S&P/ASX 200 index declined 0.8%, Japan’s Nikkei dropped 0.4%, and Chinese blue-chip CSI300 down 0.6%

Asian stocks retreated from all-time highs on Friday as higher longer-dated bond yields and underwhelming U.S. data dented investor confidence in a faster economic recovery, while gold hit a seven-month low.

MSCI’s broadest index of Asia Pacific shares outside of Japan dropped 0.1%, to 733.67 from a record peak of 745.89 on Thursday.

The index is on track for a small weekly loss following two straight weekly gains.

The index has surged about 10.5% since the start of the year, largely driven by easy monetary and fiscal policies around the world.

On Friday, Australia’s S&P/ASX 200 index declined 0.8% while Japan’s Nikkei dropped 0.4%.

Chinese shares started in the red with the blue-chip CSI300 down 0.6%.

The recent move up in longer dated core yields appears to be weighing on equity investors’ mind, said Rodrigo Catril, forex strategist at National Australia Bank.

Core bond yields have gained globally led by “reflation trade” where investors wager on a pick-up in growth and inflation. Successful coronavirus vaccine deployments and optimism over fiscal spending under U.S. President Joe Biden have spurred reflation trades.

On Thursday, Germany’s 10-year yield posted its highest close since June, British 10-year yields were at 10-month high of 0.65% and U.S. Treasury yields were near one-year highs of around 1.3%, which is a big factor supporting the U.S. dollar.

Rising bond yields hurt gold’s appeal, with spot prices reaching a seven-month low of $1,766 an ounce on Friday.

While rising yields weighed on investor sentiment, “disappointing U.S. jobless figures didn’t help the cause either,” Catril added.

An unexpected rise in the number of Americans seeking jobless benefits weighted on outlook. The Labor Department reported initial unemployment claims increased by 13,000 to 861,000, spiking scepticism about how rapidly the U.S. economy could bounce back from the pandemic.

Moreover, U.S. housing stats were down 6.0% in January, for the first time in five months.

On Wall Street, the Dow dropped 0.38%, the S&P 500 declined 0.44%, and the Nasdaq Composite shed 0.72%.

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