Global markets tumble after rising bond yields

International stocks fell on Friday, following declines in US indices as a sell-off of bonds helped reduce investors’ appetite for high-value stocks.

However, US Treasuries rose in price, recovering some of the losses from the previous session, and futures suggested that stocks in New York could stabilize or gain slightly in Friday trading.

Investors said the market had been reassessing prospects for interest rate hikes by the US Federal Reserve, despite assurances from President Jerome Powell that the central bank will not raise rates any time soon. .

“What has happened in recent weeks is that markets have had to modify prices in response to expectations of rate hikes from the Federal Reserve,” said Dwyfor Evans, head of macro strategy for the Asia Pacific region at State Street Global Markets in Hong Kong.

He said the recovery in bond yields would have knock-on effects in areas like corporate lending and mortgage rates. “That’s why stocks will be under pressure here, because rising returns will have some impact on the [economy] and earnings may have to slow down, ”Evans said.

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

In Asia, as in the United States, some of the biggest drops were in high-yielding tech stocks. SoftBank Group,

Samsung Electronics and Taiwan Semiconductor Manufacturing Co.

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

Higher bond yields suggest that the US economy is returning to normal, which should bode well for corporate earnings. But they also enhance the relative attractiveness of bonds compared to stocks, and may cause investors to re-evaluate how much they should pay now for expected future earnings – a particular problem for fast-growing tech stocks.

“Since the market has already recovered over the last 10 months, there is a lot of profit-taking being seen,” said Ken Wong, portfolio manager at Eastspring Investments. Wong said rising borrowing costs were already causing some market participants to write off positions bought with leverage, while expensive valuations were also fueling caution.

As of Thursday, the MSCI AC World Index traded at a price of 20 times expected earnings, according to Refinitiv data, a 37% premium to the 10-year average.

On Thursday, the S&P 500 fell 2.4% and the Nasdaq fell 3.5%, as the yield on the 10-year Treasury rose to a one-year high above 1.5%. Bond yields move inversely to prices.

But futures suggested that the stock sell-off might not spread much further into US markets on Friday, with the S&P 500 falling 0.1% and Nasdaq-100 futures falling 0.5%.

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

Some regional bond markets followed Thursday’s sell-off in the US, with Australian benchmark yields climbing to 1.87%, the highest since 2019.

In Japan, 10-year yields also hit a multi-year high at 0.16%. Since 2016, the Bank of Japan has kept 10-year rates around zero under its policy of controlling the yield curve, although in recent years it has allowed rates to exceed or not soar by as much as 0.2 percentage points.

Write to Xie Yu at [email protected]

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