Rally in bonds ends but real action is in Tencent

London — The government bond market rally that had sent US treasury yields under 1.2% and the entire German curve negative fizzled out on Tuesday, though there were more problems in China as internet giant Tencent took another battering.

Rising bank shares helped Europe's main markets make a steady start but the real action was elsewhere.

A Chinese state media outlet branding online games “spiritual opium” was enough to send Tencent tumbling as much as 10% in Asia, hot on the heels of its worst month in nearly a decade.

The panic also engulfed gaming rivals NetEase, XD and GMGE and meant a closely-watched China tech index slumped 2.3% in its worst day since mid-June.

“China is exerting control over its tech sector and this has already driven a very sharp de-rating,” Hasnain Malik, head of equity research at Tellimer said.

He said that there would be no reversal in Beijing although the more than 40% slump in many of the biggest Chinese tech firms since February meant valuations versus record high US tech giants meant they might be now worth a “revisit”.

The other big moves were the Australian dollar which jumped 0.5% after its central bank stood its ground on tapering its bond buying programme from September despite ongoing coronavirus lockdowns.

The US dollar meanwhile lurked just off one-month lows after disappointing economic data on Monday. It had also pushed the benchmark 10-year treasury yield as low as 1.151%, its lowest since July 20.

Germany’s 10-year yield, the benchmark for the eurozone, fell to its lowest since early February at -0.486%. It was last up less than a basis point at -0.47%.

Its 30-year yield, which turned negative and sent the whole German yield curve into negative territory on Monday, was hovering around 0%.

“There is some definite downside bias in the dollar now,” said Vasileios Gkionakis, Global Head of forex strategy at fund manager Lombard Odier in Switzerland. “You are starting to a see a rotation of growth away from the US”

In commodity markets, oil steadied having slumped 3% on Monday on a combination of US and Chinese economic worries and whether the sharp rise in Covid-19 Delta variant cases around the world would be severe enough to hurt global growth.

Brent crude was up 33c in London at $73.28 per barrel. US crude inched up to $71.56 a barrel while gold and industrial metal copper were both slightly lower at $1,810.45/oz and 9,594.50 a tonne respectively.

Reuters