Asian stocks looked set to gain as pressure from the bond market eased after the United States Treasury unveiled plans to buy back longer-dated debt to curb borrowing costs. Bonds rallied and the dollar fell to a three-month low.
Futures for Japan, South Korea and Australia indicated gains at the open, setting up a broader regional gauge to snap two days of losses. US equity-index futures also advanced in early Asian trading after the S&P 500 Index posted a modest gain on Aug 18 even as chipmakers declined.
The moves in stocks came after a rally in 30-year Treasuries drove yields down 10 basis points to 5.18 per cent during the New York session. That was spurred by the US Treasury announcing plans to boost buybacks of securities dated from the 10-year to the 30-year after a surge in yields to multi-decade highs.
Gold climbed to its highest level since early June in the prior session as bond yields fell. Oil held a four-day run of gains with US crude trading near US$85 a barrel, while Bitcoin rose to around US$70,000 (S$89,000) as US President Donald Trump pressed Congress to pass a key crypto bill as the White House hosted industry executives.
Global bonds had been jolted in recent days as investors demanded greater compensation for inflation risks and rising government debt, while tensions in the Middle East added to inflation pressures. The sell-off was also fuelled by corporate borrowing to fund the artificial-intelligence boom and waning demand from traditional buyers of long-dated debt.
“There is no question that the administration has become very concerned about the bond market once again and thus they are giving it another injection of steroids,” said Matt Maley, chief market strategist at Miller Tabak. This is something that could “buoy risk assets over the near-term”.
Long-dated government yields surged globally this week, with the US 30-year yield reaching its highest level since 2007. A 10-year Treasury auction last week drew the highest financing cost for that maturity since 2007, while a 30-year sale a day later cleared at the highest yield since 2001.
While the Treasury did not indicate how the operations would be paid for, it typically relies on issuance of bills for its fluctuating funding needs. If officials are in effect replacing longer-dated debt with short-term securities, the maneuver amounts to a version of the Federal Reserve’s “Operation Twist”.
“This administration needs a win, and maybe that comes in the form of artificially trying to keep long Treasury rates contained,” said Jack McIntyre, a portfolio manager at Brandywine Global Investment Management. “They have to try something. Sentiment around the long-end globally is about as bearish as I have seen in a very long time.”
Meanwhile, in geopolitical developments, the US will begin what Trump said would be an unprecedented economic warfare operation against Iran, after faulting the country for failing to take its chance to make a deal with him.
Elsewhere in Asia, traders will also be watching SK Hynix after the South Korean memory-chip maker unveiled plans to buy back 40 trillion won (S$36 billion) of shares and return more profits to investors.
The company is seeking to stabilise its stock after a decline of more than 50 per cent in two months.
Investors are also parsing minutes from the Fed’s latest meeting, which showed several officials favoured raising interest rates in July and many thought further tightening may be needed if inflation failed to cool.
However, uncertainty hung over the meeting as participants’ inflation outlooks were clouded by the Iran war.
“Most participants anticipated that inflation would step down over the rest of the year as the effects of tariffs and earlier energy price increases wane, but many participants noted the possibility that inflation might be more persistently elevated,” the minutes said. BLOOMBERG
Source : https://www.straitstimes.com/business/asian-stocks-to-gain-as-us-treasury-supports-bonds
