Asian stocks hit 11-month lows on Wednesday as a continuing global bond markets downturn caused U.S. yields to soar to 16-year highs. This situation has challenged equity valuations and dampened the appetite for risk assets broadly.
The surge in Treasury yields pushed the dollar to new peaks, with only the yen resisting, amid speculation of behind-the-scenes intervention by Japanese authorities.
The yen dropped below the 150-per-dollar mark during London's Tuesday afternoon before abruptly rebounding to 147.3. There was no direct comment or confirmation from Japan's finance minister or chief currency diplomat on these movements. The yen last stood at 149.181 per dollar.
Meanwhile, stronger-than-expected U.S. job openings data pushed the 10-year yield up nearly 12 basis points (bps) on Tuesday. It increased a further three bps in Asia, reaching 4.838%, the highest level since 2007.
MSCI's broadest index of Asia-Pacific shares outside Japan sank by over 1% for a second consecutive day. Japan's Nikkei and South Korea's Kospi both fell by over 2%. S&P 500 futures declined 0.3%.
As there hasn't been a significant shift in market inflation expectation gauges, U.S. yields in real terms — subtracting inflation — have also reached nearly 15-year highs. This is driving funds into dollars from all corners.
Bonds across Asian emerging markets are under pressure, and currencies such as the Thai baht, Taiwan dollar, Malaysian ringgit, Indonesian rupiah, and Indian rupee are all approaching or at record lows. Some central banks are stepping in to curb the fall.
The dollar's surge pulled the euro to its lowest in 10 months at $1.0448 overnight and the sterling to a seven-month low at $1.20535. Both currencies were trading near these levels on Wednesday.
The yen's slip past the 149-per-dollar mark prompted doubts over whether Japan's finance ministry had truly orchestrated an intervention. Nonetheless, it was sufficient to discourage short sellers.
The Australian dollar lingered near an 11-month low at $0.6304, while the New Zealand dollar hovered above a similar benchmark, following the central bank's decision to keep rates unchanged and indicating no imminent hike.
Federal Reserve officials don't consider the escalating yields on long-term U.S. Treasury debt as alarming yet.
In commodity markets, the stronger dollar has put a halt to rising oil prices, and higher yields have put pressure on gold.
Brent crude futures held steady at $90.87 a barrel, after reaching an 11-month high of $97.69 last week.
Spot gold hit a seven-month low of $1,814 an ounce on Tuesday, last trading at $1,819.