Asian markets extend rally as traders assess US Treasuries pledge

On August 21, Asian stocks saw a slight increase as investors evaluated the US Treasury's actions to lower long-term bond yields. However, US Treasury Secretary Scott Bessent's announcement of additional support measures did little to reassure Wall Street investors, who continued to sell amid concerns over high inflation and government borrowing.

The ongoing deadlock over the Strait of Hormuz and rising oil prices added to market unease. The US Treasury's pledge to "at least double" its sovereign bond buybacks, announced on August 19, provided some relief, but long-term rates rebounded on August 20. Treasury Secretary Bessent stated that his department possessed a "big toolkit" to manage rising yields that they deemed detached from financial conditions.

He mentioned the possibility of expanding bond purchases beyond the previous scale, noting that the market is thinly traded due to considerable corporate issuance in recent months. Bessent believed that soaring yields do not accurately reflect the economy's actual fundamentals. He also mentioned that inflation, which has been above the Federal Reserve's 2% target for over five years, would decrease once the US resolves its issues with Iran and oil prices stabilize.

Despite the rise in yields, Wall Street indexes declined, particularly tech firms reliant on debt for significant investments. However, Asian markets benefited from a positive day, with Seoul's tech sector lifted by chipmakers. Samsung rose 3.9%, while SK Hynix saw a more than 2% increase after announcing a US$29 billion stock buyback.

Other Asian markets, including Hong Kong, Singapore, Wellington, Taipei, Mumbai, Bangkok, and Jakarta, also experienced gains, while Tokyo and Sydney experienced declines. The yen strengthened against the dollar as Japanese inflation rose in July due to higher oil prices caused by the Middle East crisis, providing the Bank of Japan with room to raise interest rates in September.

Factors contributing to the spike in yields were discussed, with Michael Hewson at MCH Market Insights attributing it to government spending commitments, the boom in AI infrastructure, and corporate bonds' increased supply. Others pointed to Fed Chair Kevin Warsh's refusal to provide market guidance on monetary policy, fueling uncertainty on trading floors, and traders will be closely monitoring his speech at the upcoming Jackson Hole meeting.