Bond Yields Decline as Asian Stocks Tread Water: Markets Wrap

(Bloomberg) — Treasuries advanced in Asian trading as did several major equity markets, with Japan the exception ahead of an election that risks adding selling pressure on its stock market and currency.

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Mainland China and Hong Kong shares rallied alongside those in Australia and South Korea. The moves offset Japan’s slide to keep MSCI’s Asian index flat. US futures were little changed after the S&P 500 rose 0.2% and the Nasdaq 100 climbed 0.8%. The moves partly reflected the 22% leap for Tesla Inc. shares on strong earnings and forecast.

Treasury yields fell for a second day as traders reassessed bets on US rate cuts and risks from the upcoming presidential election. Yields for Australian and New Zealand bonds also declined. The dollar was steady, on track for a fourth straight weekly gain.

A surge in Treasury yields earlier in the week had led to risk-off moves across markets, as traders scaled back expectations for Federal Reserve rate cuts. Economic data next week will provide more clarity, while polls show a tie between Donald Trump and Kamala Harris in swing states.

“We have seen this upward move in terms of US Treasury yields actually supporting the dollar index,” said Carie Li, global market strategist, DBS Bank Hong Kong, speaking on Bloomberg Television. “After the election we are still expecting the dollar index to trend lower because we expect the Fed will further cut interest rates no matter who wins.”

The yen was stuck in a range against the dollar ahead of the weekend’s election that may see Japan’s ruling coalition lose its majority in the lower house of parliament for the first time since 2009. Such an outcome would weaken the yen and Japanese stocks, according to strategists.

Moreover, Governor Kazuo Ueda signaled the central bank won’t hike interest rates next week, with almost all BOJ watchers already expecting no policy shift this month. Ueda spoke after the yen slid to the lowest level since July 31 against the dollar earlier this week.

Elsewhere in Asia, China’s central bank kept its one-year policy rate unchanged, after slashing funding costs by the most on record a month ago, suggesting authorities are cautiously pacing monetary stimulus to support the economy.

Yet the country’s recent barrage of fiscal measures falls short of what’s needed to address deflationary risks, according to one senior International Monetary Fund official. The central government “has to spend” more to address the property crash and ease price pressures, Krishna Srinivasan, the organization’s Asia-Pacific department chief, said prior to the policy rate announcement.

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