Asian markets are in the grip of bond rout

SYDNEY / MIAMI (Reuters) – Asian stocks slipped to a one-month low on Friday as the rout in global bond markets blew yields and spooked investors, fearing the heavy losses suffered could trigger sales in difficulty of other assets.

The scale of the selloff prompted Australia’s central bank to launch a surprise bond-buying deal in an attempt to stem the bleeding, helping yields cross early peaks.

Yields on 10-year Treasuries fell back to 1.494%, after a one-year high of 1.614%, but were still up 40 basis points for the month in the biggest move since 2016.

“The fixed income rout is entering a deadlier phase for risky assets,” said Damien McColough, head of rate strategy at Westpac.

“The rise in yields has long been seen primarily as a story of improving growth expectations, or even cushioning risky assets, but the overnight move included a sharp rise in real rates and an anticipation of take-off expectations. from the Fed.

Markets were hedging the risk of an earlier rate hike from the Federal Reserve, although officials this week vowed any move would be long into the future.

Fed funds futures are now almost fully valued for up 0.25% by January 2023, while Eurodollars have discounted them for June 2022.

Even the thought of the eventual end of super cheap money sent shivers down the spine of global stock markets which have steadily hit record highs and stretched valuations.

The largest MSCI index of Asia-Pacific stocks outside of Japan slipped 2.4% to a one-month low, while Japan’s Nikkei fell 2.5%.

Chinese blue chips joined retirement with a 2.5% drop.

NASDAQ futures fell 0.5% after falling sharply overnight, while S&P 500 futures fell 0.1%. EUROSTOXX 50 futures lost 1.2% and FTSE futures 1.1%.

EMERGING STRAINS

Overnight, the Dow Jones lost 1.75%, while the S&P 500 lost 2.45% and the Nasdaq 3.52%, the biggest drop in nearly four months for the high-tech index.

Tech darlings have all suffered, with Apple Inc, Tesla Inc, Amazon.com Inc, NVIDIA Corp and Microsoft Corp holding the biggest brakes.

All of this elevated the importance of U.S. personal consumption data due later on Friday, which includes one of the Fed’s favorite inflation measures.

Core inflation is actually expected to drop to 1.4% in January, which could help ease market angst, but any upside surprises would likely accelerate the bond rout.

Soaring Treasuries yields also spurred declines in emerging markets, which feared the best yields on offer in the United States could divert funds.

Preferred currencies for leveraged carry trades all suffered, including the Brazilian real, Turkish lira and South African rand.

The flows helped push the US dollar up more broadly, with the dollar index reaching 90.360. It also gained on the weak-yielding yen, briefly reaching its highest since September at 106.42. The euro fell slightly to $ 1.2152.

Rising yields tarnished gold, which offers no fixed return, and pulled it down to $ 1,767 an ounce from the week’s high around $ 1,815.

However, ANZ analysts were more bullish on the outlook.

“We now expect US inflation to hit 2.5% this year,” they said in a note. “Combined with a further depreciation of the US dollar, we see the fair value of gold at $ 2,000 / ounce in the second half of the year.”

Oil prices have remained near 13-month highs as profit taking was limited by a sharp drop in US crude production last week due to the winter storm in Texas. [O/R]

US crude fell 44 cents to $ 63.08 a barrel and Brent fell 33 cents to $ 66.55.