Markets in Asia slip as US bond yields continue to spike

Hong Kong's Hang Seng Index falls 1.6% and Japan's Nikkei 225 falls 1.1%

A woman wearing a mask walks in front of an electronic board showing a drop in the value of Japan's Nikkei 225 index in Tokyo on Friday. AP Photo

Asian stocks weakened Friday after US shares fell from a record, with Treasury yields hovering around the highest levels in over a year as the Federal Reserve’s tolerant stance on inflation unnerved investors.

Japan’s Topix rallied and the Nikkei 225 sank after the Bank of Japan said it will focus purchases of exchange-traded funds on the former gauge. MSCI’s Asia-Pacific stock index fell and China struggled. US equity futures edged up after the Nasdaq 100 tumbled 3.1 per cent and the S&P 500 fell 1.5 per cent.

US Treasury yields steadied after a spike drove the 10-year benchmark to 1.75 per cent for the first time since January 2020. Crude prices recovered slightly from a 7 per cent plunge that owed partly to concerns that new virus-related curbs in Europe will sap demand. The dollar held its gains from the prior day.

The Bank of Japan’s policy decision included a widening of the flexible trading band to 25 basis points either side of its 0 per cent target for the 10-year yield. Government bonds and the yen were little changed on the announcement.

Fed chairman Jerome Powell’s willingness to let the US economy run hotter with central bank support has spurred bets on faster inflation, sending market expectations of price pressures to multi-year highs. Across the Atlantic, France announced a lockdown of areas including Paris to fight the pandemic, casting a cloud over Europe’s outlook amid an uneven vaccine roll out.

“Economic recovery is on its way and we have central banks around the world very committed to easy monetary policy,” said Jun Bei Liu, portfolio manager at Tribeca Investment Partners, who believes value stocks will benefit. “All of that together will indicate this is just short-term profit-taking and the underlying fundamentals of the equity market are looking very strong.”

Traders were also bracing for quadruple witching Friday, a major expiration of options and futures contracts that can exacerbate swings in asset prices.

Elsewhere, the first senior-level talks between US and Chinese officials since Joe Biden became president immediately descended into bickering and recriminations. And a number of European nations will start using AstraZeneca’s Covid-19 vaccine again after the European Union’s drug regulator declared it safe.

S&P 500 futures gained 0.2 per cent as of 1.50pm in Tokyo, after the benchmark closed down 1.5 per cent. Nasdaq 100 Index futures edged up 0.1%. The index fell 3.1 per cent on Thursday.

The Shanghai Composite Index fell 1 per cent, Hong Kong’s Hang Seng Index slipped 1.6 per cent and Japan’s Nikkei 225 Index fell 1.1 per cent.

The yield on 10-year Treasuries held at about 1.7 per cent, West Texas Intermediate crude rose 0.2 per cent to $60.13 a barrel and gold slipped 0.2 per cent to $1,733.54 per ounce.