Global markets tumble after surging bond yields

Investors said the market had reassessed the outlook for an interest rate hike by the U.S. Federal Reserve, despite assurances from President Jerome Powell that the central bank would not raise rates anytime soon.

“What has happened in recent weeks is that the markets have had to reassess the expectations of the Federal Reserve’s rate hikes,” said Dwyfor Evans, head of macro strategy for the Asia-Pacific region at State. Street Global Markets in Hong Kong.

He said the rebound in bond yields would impact areas such as business lending and mortgage rates. “That’s why stocks will be under pressure here, as rising yields will have some impact on the real [economy] and profits may have to slow down, ”Evans said.

In early Friday afternoon in Hong Kong, the main benchmarks there and in Japan had fallen more than 2%, as had the Chinese CSI 300 index, which includes large stocks listed in Shanghai or China. Shenzhen. South Korea’s Kospi Composite fell more than 3%.

In Asia, like the United States, some of the biggest declines have been in shares of high-end flight technology. SoftBank Group,

Semiconductor manufacturing Samsung Electronics and Taiwan Co.

all fell more than 3%, while Chinese food delivery giant Meituan fell 5.9%.

Higher bond yields suggest the US economy is returning to normal, which should bode well for corporate earnings. But they also improve the relative attractiveness of bonds versus stocks, and may cause investors to re-evaluate how much they should pay now for expected future earnings – a particular problem for fast-growing tech stocks.

“Since the market has already rallied in the last 10 months, you see a lot of profit taking,” said Ken Wong, portfolio manager at Eastspring Investments. Mr Wong said rising borrowing costs were already prompting some market participants to unwind purchased positions using leverage, while expensive valuations were also fueling caution.

On Thursday, the MSCI AC World Index was trading at a price of 20 times expected earnings, according to data from Refinitiv, a 37% premium over the 10-year average.

On Thursday, the S&P 500 fell 2.4% and the Nasdaq fell 3.5%, as the 10-year Treasury bond yield hit a one-year high above 1.5 %. Bond yields move inversely with prices.

But futures have suggested that the stock selloff may not last much longer in US markets on Friday, with the S&P 500 dropping 0.1% and Nasdaq-100 futures down 0.5%.

In Asian trade, the 10-year Treasury yield fell 0.017 percentage point to 1.498%, according to Tradeweb.

Some regional bond markets followed Thursday’s U.S. sell-off, with Australian benchmark yields reaching 1.87%, the highest since 2019.

In Japan, 10-year yields also hit a multi-year high, at 0.16%. Since 2016, the Bank of Japan has kept 10-year rates around zero as part of its policy of controlling the yield curve, although in recent years it has allowed rates to exceed or under-exceed. 0.2 percentage point.

Write to Xie Yu at [email protected]