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Tokyo — Asia-Pacific bond yields followed US treasury yields higher on Wednesday and the dollar continued its climb after Federal Reserve officials signalled they are nowhere near done raising interest rates.
Yields were also helped as demand for the safest assets retreated after US House speaker Nancy Pelosi’s safe arrival in Taiwan, despite threats of action from China, which views the island as a breakaway province. The safe-haven yen continued its slide.
That lifted stocks in Asia, despite the slide on Wall Street overnight.
Japan’s Nikkei gained 0.5%, rebounding from Tuesday’s two-week closing low, while Chinese blue chips jumped 0.86% and Hong Kong’s Hang Seng gained 0.76%.
“Hong Kong and Chinese shares have recovered around a third of yesterday’s losses because of relief that there was no major confrontation overnight,” Steven Leung, executive director for institutional sales at UOB Kay Hian in Hong Kong.
“However, investors are going to remain nervous due to the military exercises planned for after Pelosi’s departure.”
A trio of Fed policymakers signalled on Tuesday that there would be no let up in the tightening campaign aimed at taming the highest inflation since the 1980s, even though it will take rates to a level that will more significantly curb economic activity.
Two of them, San Francisco Fed president Mary Daly and Chicago Fed president Charles Evans, are widely regarded as doves.
Traders now see a chance of about 44% that the Fed will hike by another 75 basis points at its next meeting in September.
Benchmark long-term treasury yields were around 2.71% in Tokyo, not far from the overnight high of 2.774% after a 14 basis point surge.
The dollar-yen rate, which tends to closely track US yields, jumped 0.3% to 133.57, extending Tuesday’s 1.2% surge.
The dollar index, which gauges the currency against the yen and five other major peers, was 0.04% higher at 106.41, after rebounding 1% overnight after its slide to a nearly one-month low at 105.03.
Bonds and the yen, traditional safe havens, lost some sheen after Pelosi’s visit to Taiwan was so far only met by strong words and the announcement of live-far military drills by Beijing, allaying the fear of more extreme measures.
Gold edged 0.13% higher to $1,762.09/oz , but after a 0.68% retreat the previous session.
Meanwhile, MSCI’s broadest index of Asia-Pacific shares edged 0.11% higher, helped by the rally in Japan as bargain hunters came in after Tuesday’s decline to a two-week closing low.
China’s CSI 300 was also rebounding from a steep slide that took it to a nearly two-month intraday trough in the previous session. Gains for Hong Kong’s Hang Seng were led by a surge in tech stocks, with an index of the shares jumping 1.8%.
Taiwan’s stock benchmark, though, was about flat, while Australian equities declined 0.52%, on course to snap a six-day winning streak.
US stock futures edged 0.07% higher, after the S&P 500's 0.67% drop overnight.
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.