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Picture: REUTERS
Picture: REUTERS

Singapore — Asian stocks sank to 11-month lows on Wednesday as an ongoing rout in global bond markets saw US yields reach 16-year highs, challenging equity valuations and souring appetite for risk assets in general.

The spike in treasury yields lifted the dollar to new heights with only the yen showing some fight amid speculation the Japanese authorities might be intervening behind the scenes.

The yen breached the 150-per-dollar level in the London afternoon on Tuesday before suddenly shooting to 147.3.

There was no confirmation from Tokyo, where Japan’s finance minister and top currency diplomat have made no direct comment on the move. The yen last stood at 149.181 per dollar.

Across Asia’s emerging markets, bonds are under pressure and the Thai baht, Taiwan dollar, Malaysian ringgit, Indonesian rupiah and Indian rupee are all at or near milestone lows

Stronger-than-expected US job openings data, meanwhile, sent the 10-year yield up nearly a dozen basis points (bps) on Tuesday and it rose a further three bps in Asia to 4.838%, the highest since 2007.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped by more than 1% for a second day running. Japan’s Nikkei and South Korea’s Kospi fell by more than 2%. S&P 500 futures fell 0.3%.

“With the risk-free rate so high, it’s not really compelling for people to allocate away from short-term cash-like investments,” said Mel Siew, a portfolio manager at Muzinich & Co in Singapore. The S&P 500 fell 1.4% on Tuesday.

Since the move has not come with much of a shift in market gauges of inflation expectations, US yields in real terms — subtracting inflation — are also at almost 15-year highs and are sucking money from all corners into dollars.

Across Asia’s emerging markets, bonds are under pressure and the Thai baht, Taiwan dollar, Malaysian ringgit, Indonesian rupiah and Indian rupee are all at or near milestone lows, with some central banks stepping in to stem the tide.

Waiting for something to break

The dollar’s march pushed the euro to its lowest in 10 months at $1.0448 overnight and sterling to a seven-month trough at $1.20535.

Both traded near those levels on Wednesday.

For the yen, its slide back past the weak side of 149-per-dollar suggested some scepticism about whether Japan’s finance ministry had really ordered an intervention, though it was enough to quieten short sellers.

“We should be cautious of the pair as it is about sensitive levels for Japanese authorities, even after the unknown shock,” said Ryota Abe, economist at Sumitomo Mitsui Banking Corporation (SMBC) in Singapore.

At $0.6304 the Australian dollar was pinned near an 11-month low, while the New Zealand dollar was just above a similar milestone after the central bank left rates on hold and offered little suggestion of an imminent hike.

“For now, the FX market is a bystander,” said SocGen strategist Kit Juckes, “[W]atching treasuries and waiting for them to break something.”

Federal Reserve officials see rising yields on long-term US treasury debt as not triggering alarm bells yet.

In commodity markets, the stronger dollar has helped put the brakes on oil prices and higher yields have weighed on gold.

Brent crude futures were last steady at $90.87 a barrel, having hit an 11-month high of $97.69 last week.

Spot gold touched a seven-month low of $1,814 an ounce on Tuesday and was last at $1,819.

Reuters

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