Asia stocks fall, bond yields rise as markets brace for aggressive Fed rate hike

TOKYO – Stocks in Asia sank and bond yields were elevated on Wednesday, as investors braced for another aggressive interest rate hike from the US Federal Reserve later in the day.

Japan’s Nikkei dropped 1.26 per cent and touched a two-week low. Australia’s benchmark share index slid 1.35 per cent and South Korea’s Kospi fell 0.9 per cent.

Chinese blue chips declined 0.82 per cent, while Hong Kong’s Hang Seng lost 1.26 per cent.

MSCI’s broadest index of Asia-Pacific shares lost 1 per cent.

Bucking the regional trend, Singapore’s Straits Times Index edged 0.04 per cent as at 11.14am local time.

Wall Street sold off overnight with 1.13 per cent knocked off the S&P 500, although futures pointed to a slightly higher open on Wednesday.

The Fed headlines a week in which more than a dozen central banks announce policy decisions, including the Bank of Japan (BOJ) and Bank of England (BOE) on Thursday.

Sweden’s Riksbank surprised markets overnight with a full percentage-point hike, and warned of more to come over the next six months.

Despite that, bets for Fed tightening stayed stable.

Markets are pricing in an 81 per cent chance of another 75-basis-point increase, and see a 19 per cent probability of a full percentage point rise.

Global yields rose amid expectations of further tightening.

The two-year US Treasury yield hit an almost 15-year high at 3.992 per cent on Tuesday, and remained elevated at 3.9516 per cent in Tokyo trading, while the 10-year Treasury yield touched its highest in over a decade.

It hit 3.604 per cent for the first time since April 2011, and was last at 3.5473 per cent.

Australia’s benchmark 10-year yield rose to an almost three-month high of 3.789 per cent, and South Korea’s equivalent yield hit the highest since April 2012.

Markets are “seemingly well positioned for a 75bps hike alongside a hawkish update” from the Fed, Taylor Nugent, a markets economist at National Australia Bank in Sydney, wrote in a client note.