Bond rout deepens as Asia stocks join global drop

SYDNEY (BLOOMBERG) - Asian equity markets joined a global selloff on Friday (July 7) amid a rout in bonds with investors on edge as central bankers step up talk of tighter policy conditions.

Bonds in Australia joined a rout that pushed German yields to the highest level in 18 months following weaker-than-expected demand in a French debt auction that highlighted investor concerns about European Central Bank stimulus tapering. Japanese and Australian equities followed a decline in the S&P 500 Index that dragged the gauge below its average level over the past 50 days.

Japan's Topix index declined 0.4 per cent. Australia's S&P/ASX 200 Index lost 0.8 per cent. South Korea's Kospi dropped 0.3 per cent. Futures on Hong Kong's Hang Seng Index declined 0.4 per cent.

Futures on the S&P 500 Index added 0.1 per cent. The underlying gauge slid 0.9 per cent on Thursday. The Stoxx Europe 600 Index dropped 0.7 per cent.

All eyes now turn to Friday's US jobs report, where a stronger-than-expected number may give further impetus to the selloff in bonds amid hawkish central bank comments. Minutes of the ECB's latest meeting furthered that trend, as policy makers last month opened the door to dropping from their message a long-standing pledge to expand or extend the bank's bond-purchase program if necessary.

While ADP Research Institute data showed companies adding fewer workers to US payrolls in June than the prior month, a gauge of surprises from economic data this week staged its biggest rebound since March. Uncertainty surrounding US government policy may be holding back economic growth because of its negative impact on business investment, Federal Reserve Vice Chairman Stanley Fischer said.

Australian 10-year yields rose seven basis points to 2.71 per cent as of 9:21am in Tokyo, advancing for a third day.

The yield on 10-year Treasuries added one basis point to 2.38 per cent, after climbing four basis points on Thursday.

German 10-year yields climbed nine basis points to 0.56 per cent, while French 10-year yields climbed 10 basis points.

West Texas Intermediate slipped 0.9 per cent in early trading, erasing Thursday's 0.9 per cent gain. Oil is down more than 2 percent for the week, after last week stemming the rout that sent crude into a bear market.

The yen traded at 113.20 per US dollar, down less than 0.1 per cent. The Bloomberg Dollar Spot Index was flat after dropping 0.3 per cent on Thursday.