Global Bond Selloff Eases; Asian Stocks Slump: Markets Wrap

(Bloomberg) — Global bonds began to recover from an aggressive selloff that drove steep losses in Treasuries and U.S. stocks Thursday. Asian stocks slumped.

Benchmark Treasury yields fell back below 1.5% and Australian bonds pared most of their losses after the central bank launched an unscheduled purchase operation. The U.S. 10-year yield slid after trading as high as 1.6% Thursday, when a poorly received government auction led to forced selling by holders of mortgage securities. Japan’s benchmark hovered near its highest level since early 2016. The dollar pared overnight gains.

Stocks dropped more than 2% in Japan, South Korea and Hong Kong, and were weaker across the region. S&P 500 futures fluctuated after the benchmark closed down 2.5% with tech shares leading losses. The Nasdaq 100 tumbled 3.6%, the most since October, as investors rotated into companies poised to benefit from an end to lockdowns. Still, stocks popular with the day-trader crowd surged once again, with GameStop Corp. doubling at one point before ending 19% higher.

Investors are betting on a sharper-than-expected rebound for the global economy, with some growing increasingly worried that accelerating inflation could trigger a pullback in monetary policy support. Federal Reserve officials so far say surging Treasury yields reflect optimism and have stressed that the central bank has no plans to tighten policy prematurely.

What Investors Are Watching After the Spike in Treasury Yields

“A move of this magnitude is not healthy for markets and equities are rightfully acting negatively to it,” said Matthew Miskin, the co-chief investment strategist at John Hancock Investment Management. “We will be watching to see if the Fed pushes back more meaningfully on the recent rise in yields.”

The 10-year U.S. yield adjusted for inflation rose to its highest level since June, a warning sign for riskier assets that have benefited from exceptionally loose financial conditions amid the pandemic.

Story continues

In remarks this week, Federal Reserve Chairman Jerome Powell offered reassurance that policy would continue to be supportive and look beyond a temporary pick-up in inflation, especially from a low base. Nevertheless, money-market traders have now almost fully priced in a first rate hike by the end of next year.

Read more: Soaring U.S. Yields Send Risk Assets Warning as Real Rates Rise

Elsewhere, oil retreated from its the highest in more than a year as traders mulled depleting global inventories. Bitcoin traded below $50,000 again. Gold was steady after an overnight decline.

Some key events to watch this week:

Finance ministers and central bankers from the Group of 20 will meet virtually Friday. U.S. Treasury Secretary Janet Yellen will be among the attendees.

These are some of the main moves in markets:

Stocks

S&P 500 futures were little changed at 12:55 p.m. in Tokyo. The S&P 500 Index fell 2.5%.Japan’s Topix Index fell 2%.S&P/ASX 200 fell 1.9%.South Korea’s Kospi Index fell 3.1%.Hang Seng Index fell 2.4%.Shanghai Composite Index fell 1.8%.

Currencies

The Bloomberg Dollar Spot Index fell 0.1% after gaining 0.6% Thursday.The euro was 0.1% lower at $1.2166.The British pound fell 0.1% to $1.4001.The Japanese yen rose 0.2% to 106.01 per dollar.The offshore yuan rose 0.2% to 6.4782 per dollar.

Bonds

The yield on 10-year Treasuries slipped six basis points to 1.46%.Australia’s 10-year yield was up four basis points at 1.77%.

Commodities

West Texas Intermediate crude fell 0.6% to $63.13 a barrel.Gold was rose 0.2% to $1,774 an ounce.

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