TOKYO- Asian stocks dropped on Monday as investors mulled the implications of a surprise hawkish shift last week by the US Federal Reserve, while the Treasury yield curve flattened further with 30-year yields dropping below 2 percent.
Japan’s Nikkei led declines with a 3.3 percent drop and dipped below 28,000 for the first time in a month, while MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1 percent in early trading.
Chinese blue chips opened 0.4 percent lower, and Australia’s benchmark slid 1.8 percent.
Benchmark 10-year US Treasury yields fell to the lowest since early March at 1.4110 percent, while those on 30-year bonds slid as low as 1.9990 percent for the first time in more than four months.
The yield curve – measured by the spread between two- and 30-year yields – was the flattest since early February.
The US dollar hovered near the 10-week high touched on Friday versus major peers, following its biggest weekly advance in more than a year.
“The story of last week was arguably the one-way move in the USD, which morphed into a clear de-grossing through equity markets, with the ‘value’ parts of the market really getting clobbered,” Chris Weston, the head of research at Pepperstone Markets Ltd, a foreign exchange broker based in Melbourne, wrote in a client note.
“It feels that the pain trade is for further strength in the USD, higher real rates, and a flatter Treasury curve, with the market continuing to see the reflation trades unwound.”
Shares of banks, energy firms and other companies that tend to be sensitive to the economy’s fluctuations have fallen sharply following the Fed’s meeting on Wednesday, when the central bank caught investors off guard by anticipating two quarter-percentage-point rate increases in 2023 amid a recent surge in inflation.
