Shares in Asia declined while Treasury yields and the dollar rose in a sign investors are yet to fully recalibrate interest rate expectations.

Share Market Live

NSE

Equity benchmarks in Japan and Australia opened lower, while share futures for Hong Kong inched higher, following heavy selling Monday. US equity futures were also moderately lower after a small advance for Wall Street on Monday.

Treasury yields climbed in early Asian trading, extending a Monday advance. The 10-year Treasury yield added 11 basis points to set a fresh 16-year high on Monday to trade above 4.54 percent, a level last seen in 2007. The momentum flowed into Asia, with Australian and New Zealand yields also climbing.

“Rates will stay high,” BlackRock Investment Institute analysts including Wei Li, global chief investment strategist, wrote in a note. Quantitative tightening and Treasury issuance in the US could spur yields higher in the near term. “Rising long-term bond yields show markets are adjusting to risks in the new regime of greater macro and market volatility.”

Rising yields supported the greenback. The Bloomberg dollar index held its gains from Monday, when it closed at the highest level since December. The yen weakened to a fresh-year low after Bank of Japan officials doubled down on the message that stimulus is still needed.

Attention in Asia will be focused on fresh signs of turmoil for China’s property developers, after their stocks tumbled the most in nine months on Monday when China Evergrande Group missed a debt payment and former executives were detained. That added to fears about the sector’s debt pile and compounded concern that global growth will stall as the economic engine of the world’s second biggest economy sputters.

A warning that a US government shutdown would reflect poorly on America’s credit rating from Moody’s Investors Service did little to shift market sentiment Monday. Concerns about a shutdown may intensify later this week as Oct. 1 draws near.

Crude prices were flat after a small decline Monday. Traders are increasingly concerned that rising oil prices risk fanning inflation, which will make it difficult for policymakers to reduce rates anytime soon. Hedge funds boosted exposure to oil on bets tightening supplies will stoke demand.

Fed Bank of Chicago head Austan Goolsbee said it’s still possible for the US to avoid a recession. “I’ve been calling that the golden path and I think it’s possible, but there are a lot of risks and the path is long and winding,” he said in a CNBC interview.

Two Fed officials last week said at least one more rate hike is possible and that borrowing costs may need to stay higher for longer for the central bank to ease inflation back to its 2 percent target. While Boston Fed President Susan Collins said further tightening “is certainly not off the table,” Governor Michelle Bowman signaled that more than one increase will probably be required.

“There are several reasons to believe that the full impact from tighter monetary policy is still yet to take effect,” said Henry Allen, a strategist with Deutsche Bank. “As such, it will be some months before we can sound the all clear for the economy, not least given longer-term interest rates are still reaching new highs even now.”

Also Read: Trade Setup for September 26: Which way will the Nifty 50 sway in the bulls Vs bears battle?