Bond rout deepens as Asia stocks join global drop

Sydney - A global selloff in bonds and equities spread to Asia, with investors on edge as central banks step up talk of tighter policy conditions. The yen fell as the Bank of Japan sought to rein in yields.

Bonds across Asia joined a rout that pushed German yields to 18-month highs. Bunds tanked following a weak French debt auction, taking Treasuries with them, and the declines intensified as European Central Bank (ECB) minutes underscored concerns about stimulus tapering.

The yen dropped after the BOJ announced its first unlimited fixed-rate bond-purchase operation since February.

Asian equities retreated after the S&P 500 Index fell the most since May, while gold and oil also dropped.

"Shares are vulnerable to a further short-term setback as we go through the seasonally weak September quarter with the backup in bond yields on central bank exit talk looking like it has further go," said Shane Oliver, Sydney-based global strategist at AMP Capital Investors, which manages about $120bn.

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.

The ECB minutes 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 chairperson Stanley Fischer said.

The Bank of Japan (BOJ) responded on Friday with an attempt to cap an increase in yields back home. While European and US central banks are discussing exit strategies, the BOJ is maintaining a loose policy and trying to keep its 10-year yield at around zero%.

No bids were tendered after the central bank offered to buy benchmark notes at 0.11%

Here’s what’s coming up:

The G-20 summit in Hamburg starts on Friday. US President Donald Trump is expected to hold his first meeting with Russia’s Vladimir Putin as well as meet his Chinese counterpart Xi Jinping. Friday will also see the US Labour Department report official jobs figures.

American employers probably added around 175 000 workers in June and wage growth is expected to have strengthened, consistent with a solid labour market, economists project.

A Fed monetary policy report is due to be presented to Congress ahead of Chair Janet Yellen’s testimony next week.

Here are the main moves in markets:

Bonds

Australian 10-year yields rose eight basis points to 2.72% as of 1:22 p.m. in Tokyo, advancing for the eighth time in 10 sessions.  Japan 10-year yields fell less than one basis point. The central bank offered to buy debt with maturities of more than five years to 10 years, after yields on its benchmark 10-year securities more than doubled in the past week.

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

German 10-year yields climbed nine basis points to 0.56% on Thursday, while French 10-year yields climbed 10 basis points.  

Stocks

The MSCI Asia Pacific Index declined 0.6%, heading for its biggest weekly loss since early March. Japan’s Topix index slipped 0.6%, heading for its first weekly loss in a month. Australia’s S&P/ASX 200 Index lost 1.1%. South Korea’s Kospi dropped 0.3%.

Hong Kong’s Hang Seng fell 0.4% and the Hang Seng China Enterprises Index lost 0.6%. Futures on the S&P 500 Index added less than 0.1%.

The underlying gauge slid 0.9% on Thursday, closing below its average price for the past 50 days. The Stoxx Europe 600 Index dropped 0.7%.

Currencies

The yen dropped 0.4% to 113.62 per dollar, reversing an earlier gain of 0.1%. The currency is down 1.1% for the week, heading for the biggest drop since the end of April. The Australian dollar was steady after four days of losses, while the New Zealand dollar climbed 0.2%.

The Bloomberg Dollar Spot Index rose less than 0.1% after dropping 0.3% on Thursday.

The euro declined less than 0.1% after jumping 0.6% in the previous session.

Commodities

West Texas Intermediate tumbled 1.3% to $44.94 a barrel, more than erasing Thursday’s 0.9% gain. Oil is down 2.4% for the week, after jumping 7% last week to stem a rout that sent crude into a bear market.

Gold slipped 0.3% to 1,221.25 an ounce. The precious metal is down 1.6% for the week, its worst performance since early May.