Global markets are falling as bond yields rise

Investors said the market has reassessed the US Federal Reserve’s prospects of raising interest rates, despite assurances from President Jerome Powell that the central bank will not raise rates soon.

“What has happened in recent weeks is that markets have had to live up to expectations of federal reserve rate hikes,” said Dwyfor Evans, head of macro-strategy for the Asia-Pacific region at Hong Kong’s State Street Global Markets.

He said raising bond yields would have side effects on areas such as corporate lending and mortgage rates. “That is why the actions will come under pressure here, because the increase in yields will have a certain impact on the real [economy] and earnings should slow, “said Mr Evans.

By early Friday afternoon in Hong Kong, the main benchmarks there and in Japan fell by more than 2%, as did China’s CSI 300 Index, which includes large stocks listed in either Shanghai or Shenzhen. Kospi Composite in South Korea fell by more than 3%.

In Asia, as in the US, some of the biggest declines came in technological flight actions. SoftBank Group,

Samsung Electronics and Taiwan Semiconductor Manufacturing Co.

all fell by more than 3%, while Chinese food giant Meituan fell by 5.9%.

Higher bond yields suggest that the US economy is returning to normal, which should bode well for corporate gains. But they also improve the relative attractiveness of bonds compared to equities and may cause investors to revalue how much they should now pay for expected future profits – a special issue for fast-growing technology stocks.

“Given that the market has already gathered in the last 10 months, you see quite a bit of profit,” said Ken Wong, portfolio manager at Eastspring Investments. Mr Wong said rising borrowing costs are already driving some market participants to develop positions bought using leverage, while costly valuations also fuel caution.

As of Thursday, the MSCI AC World index traded at a price 20 times the expected gains, according to Refinitiv data, a premium of 37% compared to the average of the last 10 years.

On Thursday, the S&P 500 retreated 2.4 percent and the Nasdaq fell 3.5 percent as its 10-year treasury yield rose to a one-year high of more than 1.5 percent. Bond yields are reversed from prices.

But futures suggested that stock sales may not expand much further in the US markets on Friday, with those on the S&P 500 down 0.1% and Nasdaq-100 futures up 0.5%.

In Asian trading, the 10-year treasury yield fell 0.017 percentage points to 1.498%, according to Tradeweb.

Some regional bond markets followed US sales on Thursday, and Australian benchmark yields rose to 1.87%, the highest since 2019.

In Japan, 10-year yields also reached a multi-year level of 0.16%. Since 2016, the Bank of Japan has kept rates for 10 years at around zero below its yield curve control policy, although in recent years it has allowed rates to exceed or exceed by up to 0.2 percentage points.

Write to Xie Yu at [email protected]