Asian stocks wobble as bonds slump to monthly loss

Asian stocks experienced a slight decline as bond markets in Japan, South Korea, and Australia faced pressure, while most regional equity markets slipped early in trade. Oil prices and bond yields were higher, creating an uncomfortable combination for Asian equities. Investors were bracing for an interest rate hike in Australia and an environment where short-term borrowing costs would be at their highest for years.

The benchmark 10-year US Treasury yield reached a 19-year high above 5.27%, marking a nearly 50 basis point increase in the past month. The US 2-year yield also surged to 5% as traders anticipated three more Federal Reserve rate hikes by mid-year.

Sovereign yields act as a benchmark for global markets, influencing investing decisions in riskier stocks and affecting mortgages and corporate borrowing. Higher rates put pressure on government, corporate, and household budgets. In Asia, bond markets in Japan, South Korea, and Australia traded under pressure, and most regional equity markets experienced declines. However, a massive US$150 billion increase in Nvidia's buyback plan helped the Nasdaq avoid a larger drop, with the index falling by 0.9%.

Angus Hui, head of fixed income at Fullerton Fund Management in Singapore, noted that the era of very low bond yields was coming to an end, as increasing interest expenses would stretch sovereign finances and potentially hinder a recovery if the global economy slowed. Meanwhile, Brent crude futures held steady at US$106.60 a barrel, while China's technology sector faced challenges due to US plans to ban Chinese components from data centers. The blue-chip CSI300 index was near a one-year low.

The prospects for US AI giant Anthropic were highlighted in their prospectus, with the company targeting a US$2 trillion valuation but planning to invest US$518 billion in computing and infrastructure. Foreign exchange markets remained relatively stable, with the dollar set to gain on a monthly basis. The Australian dollar remained steady at US$0.7012, following the Reserve Bank of Australia's recent rate hike, along with another hike expected by February.