Stocks wobble as bonds slump to monthly loss

SINGAPORE – Surging oil prices and soaring bond yields created a hostile environment for Asian equities on Sept 29, as investors braced themselves for an interest rate hike in Australia and short-term borrowing costs settling at their highest in years.

Overnight, the benchmark 10-year US Treasury yield spiked past 5.27% to hit a 19-year peak, capping a nearly 50-basis-point jump in September.

This marked the heaviest monthly sell-off for bonds in two years. Yields rise when bond prices fall.

The two-year US Treasury yield rose even further, shooting up more than 57 basis points in September and nearing the 5% mark, as traders figure that US growth and inflation will drive three more US Federal Reserve rate hikes by the middle of 2027.

Sovereign yields are an anchor for global markets, a reference price for investing in riskier stocks and a benchmark for mortgages and corporate borrowing.

Higher rates mean greater pressure on government, corporate and household budgets.

Overnight, only a massive US$150 billion boost to a buyback plan by chipmaker Nvidia – which lifted the stock price – limited the decline of the rates-sensitive Nasdaq to 0.9%.

In Asia, bond markets in Japan, South Korea and Australia traded under pressure, and most regional equity markets slipped.

“The way to look at expected returns and overall bond yields going forward is that we’re moving into a new environment,” said Angus Hui, head of fixed income at Fullerton Fund Management in Singapore.

“Interest expenses are increasing as a part of the government’s budget in a lot of developed markets,” he said, which means greater strain on sovereign finances and perhaps limiting the bond recovery should the global economy slow down.

“Hence, we think bond yields are unlikely to go back to the good old days, when bond yields were very, very low,” he said.

The lack of any sign of a breakthrough in the Middle East left Brent crude futures at US$106.60 a barrel and climbing.

Fragile sentiment in China’s technology sector, where stocks were hit on Sept 28 by US plans to ban Chinese components from data centres, left the blue-chip CSI300 index pinned to a one-year low.

The scale of the gamble on artificial intelligence was illustrated by the prospectus for US AI giant Anthropic, with the company targeting a US$2 trillion valuation while planning to spend US$518 billion on computing and infrastructure to build its transformative vision.

Foreign exchange markets were broadly steady through the morning in Asia on Sept 29, leaving the dollar headed for a monthly gain.

The yen rose on Sept 28, after Japan’s top currency diplomat told Reuters that traders ought to heed last week’s message from Tokyo and Washington regarding their determination to address the weakness of the currency.

It hovered at 157.31 per US dollar, while the euro held at US$1.1367.

The Australian dollar was steady at 70.12 US cents, with a Reserve Bank of Australia (RBA) rate hike fully priced, along with another hike by February.

“We question whether the (RBA) governor can be sufficiently hawkish to validate the markets’ current mindset, especially if the decision is not unanimous,” said Damien McColough and Uma Choudhury, rates strategists at Westpac, in a note. REUTERS