Asian Stocks Rise After Bond Rally; Dollar Holds Steady
Asian stocks rose as pressure from the bond market eased following the US Treasury Department's announcement of plans to repurchase long-term debt to curb borrowing costs. US Treasuries held onto their gains, while the dollar stabilized after briefly falling to a three-month low.
The MSCI Asia Pacific stock index climbed 0.8%, led by South Korean shares which surged more than 2%. US stock index futures also rose in early Asian trading after the S&P 500 posted a modest gain on Tuesday, despite a decline in chipmaker stocks.
Shares of SK Hynix Inc. rose more than 5% in early trading after the South Korean memory chipmaker announced plans for a 40 trillion won (US$29 billion) share buyback and increased returns to investors.
This stock movement followed a rally in 30-year US Treasuries that pushed yields down 10 basis points to 5.18% during the New York trading session. The rally was triggered by the US Treasury's announcement of plans to increase buybacks of securities with maturities of 10 to 30 years, following a surge in yields to multi-decade highs. Bonds in Australia and Japan also moved in tandem with the US bond trend.
Gold prices rose to around US$4,515 per ounce, having previously reached their highest level since early June in the prior session. Brent crude prices held steady at US$91.60 per barrel, while Bitcoin climbed toward the US$70,000 mark after President Donald Trump urged Congress to pass a key cryptocurrency bill as the White House hosted industry executives. Global bond markets have been shaken in recent days by investor demands for higher yields to compensate for inflation risks and rising government debt, compounded by inflationary pressures stemming from tensions in the Middle East. The sell-off was also driven by corporate borrowing to fund the artificial intelligence (AI) boom and waning demand from traditional buyers of long-term bonds. "There is no doubt that the government is once again deeply concerned about the bond market, prompting them to give it another 'shot of steroids'," said Matt Maley, chief market strategist at Miller Tabak + Co. This move has the potential to "prop up risk assets in the short term."
Yields on long-term government bonds surged globally this week, with the US 30-year bond yield hitting its highest level since 2007. Last week's 10-year Treasury auction saw the highest borrowing costs for that maturity since 2007, while the sale of 30-year bonds a day later recorded the highest yield since 2001.
Although the US Treasury Department did not specify how the operations would be funded, it typically relies on issuing short-term debt (bills) to meet fluctuating funding needs. If the government effectively replaces long-term debt with short-term securities, the move would resemble a version of the Federal Reserve's "Operation Twist." "This administration needs a win, and that might be achieved by trying to keep long-term Treasury yields artificially in check," said Jack McIntyre, a portfolio manager at Brandywine Global Investment Management. "They have to try something. Global sentiment toward long-term bonds is currently extremely bearish—the likes of which I haven't seen in a very long time."
Meanwhile, regarding geopolitical developments, the US is set to launch what Trump has termed an unprecedented economic warfare operation against Iran, after blaming the country for failing to seize the opportunity to reach a deal with him. Investors are also closely examining the minutes from the Fed's latest meeting, which reveal that some officials supported an interest rate hike last month and many argued that further tightening might be necessary if inflation does not subside.
However, uncertainty surrounded the meeting as participants' views on inflation were influenced by the situation regarding Iran.
"Most participants expected inflation to moderate over the remainder of the year as the effects of tariffs and earlier energy price increases faded, yet many noted the possibility that inflation could remain persistently high," the minutes stated. (asd)*
Source: Newsmaker.id
