- Short-end yields at multi-year highs; curve inversion deepens
- Yuan weakens to 7 per dollar; greenback gauge fluctuates
Asian stocks headed for a fifth week of declines following more weakness in US equities and a surge in short-end Treasury yields that reflects expectations for outsized Federal Reserve interest rate hikes.
Shares fell in Japan, Australia and Hong Kong after the S&P 500 Index closed at its lowest level in about two months. Mainland China equities also slumped. China house prices accelerated their decline last month while industrial production and retails sales in August were better than expected.
The greenback fluctuated and policy-sensitive two-year Treasury yields held around the highest since 2007. The latest US economic data painted a mixed picture for the economy that backed the view for hawkish monetary policy.
Swaps traders are currently pricing in a 75 basis-point hike when the Fed meets next week, with some wagers appearing for a full-point move. The continued rise in rate-sensitive Treasuries deepened the curve inversion, a harbinger for a looming recession. The curve from five to 30 years inverted by as much as 20 basis points in US trading Thursday.
“This is a market waiting for the next catalyst,” Fiona Cincotta, senior financial markets analyst at City Index, said by phone. “What we saw in the selloff on Tuesday is the repricing of expectations of the Fed. Until we really hear from the Fed we are not going to get a very clear direction.”