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Rising US yields take the lead over equity rally

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SINGAPORE / TOKYO (Reuters) – Stock markets hit a new record high in Asia on Wednesday, but their rally lost some momentum as a surge in US Treasuries yields put pressure on high corporate valuations and on commodity currencies.

FILE PHOTO: A Wall Street sign in front of the New York Stock Exchange in New York, New York, United States October 2, 2020. REUTERS / Carlo Allegri / File Photo

Benchmark ten-year Treasury bill yields hit a new one-year high to trade near pre-pandemic levels, as vaccine advances and encouraging economic data begin to prompt investors to focus on an inflation boost now widely expected.

The prospect of better risk-free returns held stocks and supported the US dollar. The MSCI’s largest Asia-Pacific stock index outside of Japan posted a 0.3% gain and a record, while Japan’s Nikkei fell 0.3%.

FTSE futures rose 0.2% while EuroSTOXX 50 futures traded just below flat and S&P 500 futures traded just above flat. Ten-year Treasury bill yields, up nearly 40 basis points this year, rose to 1.3330% before slowing down.

The bond market only focuses on what we have in front of us, said Masahiko Loo, Tokyo-based portfolio manager at AllianceBernstein.

The immediate is the stimulus package … and on top of that, this view people have of rising inflation encourages them to sell bonds, he said.

Investors, at the moment, don’t think central banks will do anything about it any time soon, and a few minutes later Wednesday of the January US Federal Reserves meeting should reinforce that view.

The spread between US ten-year and two-year rates also reached its widest point in nearly three years in anticipation of short-term rates going nowhere. [US/]

Policy rates will almost certainly be virtually zero in a few years, said Rob Carnell, chief Asia economist at ING. It’s just this prospect that things can get a little stronger, and instead of 1% or lower inflation, maybe 2% or a little higher is enough (to increase returns ).

In addition to a cooling in stock market exuberance, gold and the Japanese yen were other victims of the rate hike. Gold, which earns no income, tends to fall as yields rise and it hit a two-week low on Wednesday. [GOL/]

The yen is sensitive to US rates because Japanese yields are pegged and higher US yields can attract investment flows in both yen and dollars. The yen hit its lowest level in five months against the dollar on Wednesday and lost 2.7% this year.

COLDNESS

Gains in commodity prices have been another big driver of inflation expectations and this was further boosted by a cold snap in Texas that halted about a fifth of US oil production and pushed up prices in the United States. ‘energy. [O/R]

Pre-month gas futures also jumped 10% to a more than three-month high, and although a stronger US dollar has since reduced gains, oil is nearing highs of 13 months.

US crude futures were up 0.1% to $ 60.11 per barrel on Wednesday and Brent futures were up 0.2% to $ 63.50 per barrel.

In the currency markets, the strength of the dollar was exerting strong pressure. The euro dipped below its 20-day moving average at $ 1.2083. The British pound, which rose as vaccinations rolled quickly across the UK, was pushed back below $ 1.39 and last sat at $ 1.3874. [FRX/]

The cryptocurrency bitcoin rose another $ 50,000 as signs of large investor interest in the asset pushing more and more to buy.

Investors will watch the inflation data releases in Britain and Canada on Wednesday for any signs of a rise, and US retail sales data is also expected.

Income reports for Hilton Worldwide Holdings Inc, Hyatt Hotels Corp and Marriott International Inc this week will also be scrutinized for signs of a recovery in global travel demand.

Reporting by Tom Westbrook in Singapore and Kevin Buckland in Tokyo, additional reporting by Pete Schroeder in Washington; Editing by Sonya Hepinstall and Gerry Doyle

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