TOKYO/NEW YORK- Asian stocks bounced back from a two-month low on Wednesday after bond yields eased following a well-received auction and as Chinese shares found a footing after recent steep falls on policy tightening worries.
MSCI’s ex-Japan Asia-Pacific shares index rose 0.4 percent, a day after it hit a two-month low. The CSI300 index of mainland China’s A-shares rose 0.7 percent in early trade.
The rebound came after Chinese shares had fallen to their lowest levels since mid-December the previous day on the prospect of tighter policy and a slowing economic recovery.
Japan’s Nikkei was little changed while e-mini futures for the S&P 500 shed 0.25 percent, erasing earlier gains.
“Markets are giving full attention to bonds. As earnings are not growing that fast right now, the lofty stock prices we have now will become unsustainable if bond yields rise further and undermine their valuation,” said Hiroshi Watanabe, senior economist at Sony Financial Holdings.
The yield on benchmark 10-year notes slipped to 1.539 percent, having peaked at 1.626 percent on Friday, after Tuesday’s auction of $58 billion in US 3-year notes was well received.
Yet, many market investors remained on edge, with the next tests of investor appetite for government debt due later this week in the form of 10-year and 30-year auctions.
“Although the bond market has steadied a bit, pressures will remain,” said Naokazu Koshimizu, senior rates strategist at Nomura Securities.
“It has priced in future normalization of the Fed’s monetary policy, the Fed’s policy becoming eventually neutral. But it has not yet priced in the chance of its policy becoming tighter.”
Some investors see a real risk of an overheated US economy and higher inflation on the back of planned spending by the Biden administration, including a $1.9 trillion stimulus and an even bigger initiative on infrastructure.
On Wall Street, each of the major averages closed higher, led by a gain of nearly 4 percent in the Nasdaq, giving the tech-heavy index its best day since Nov. 4.
The index has been highly susceptible to climbing rates, and Monday’s retreat left it down more than 10 percent from its Feb. 12 close, confirming what is widely considered to be a correction. – Reuters