Stocks wobble as bonds slump to monthly loss

Stocks dipped as bonds registered a monthly loss on September 29, presenting an uncomfortable scenario for Asian equities. Investors were on edge, anticipating an impending interest rate hike in Australia and a new era of high short-term borrowing costs. The 10-year US Treasury yield hit a 19-year peak above 5.27%, marking a 50 basis point increase throughout the month.

Bond yields rose as prices fell, leading to the heaviest monthly selloff in two years. The US 2-year yield surged even higher, crossing the 5% mark, as traders anticipated three more Federal Reserve rate hikes by mid-2027 due to expected US growth and inflation. As sovereign yields serve as a benchmark for global markets, riskier stocks, and mortgages, higher rates exert pressure on government, corporate, and household budgets.

Despite Nvidia's USD150 billion buyback plan, which helped sustain the Nasdaq, the rates-sensitive index declined by 0.9%. In Asia, Japan, South Korea, and Australia experienced pressure on bond markets, and most regional equity markets followed suit. Angus Hui, head of fixed income at Fullerton Fund Management in Singapore, noted that interest expenses are anticipated to rise in many developed markets' budgets, stretching sovereign finances and potentially curtailing bonds' recovery if the global economy slows down.

Brent crude futures climbed to USD106.60 a barrel, while China's technology sector, hit by US plans to exclude Chinese components from data centers on September 28, remained fragile, with the CSI300 index at a one-year low. The US AI giant Anthropic aimed for a USD2 trillion valuation but was investing USD518 billion in computing and infrastructure for its ambitious vision.

Foreign exchange markets remained relatively stable in Asia on September 29, with the dollar poised for a monthly gain. The yen rose on September 28 after Japan's top currency diplomat informed Reuters that traders should heed Tokyo and Washington's coordinated concern about yen weakness. The yen was trading at 157.31 per US dollar, while the euro held steady at USD1.1367.

The Australian dollar was stable at USD0.7012, with a Reserve Bank of Australia rate hike already priced in, and another hike expected by February. Analysts questioned whether the governor could be sufficiently hawkish to reassure markets, especially if the decision lacked unanimous support.