A selloff in global sovereign bonds pushed Asian stocks to two-week lows on Wednesday as investors worried it might trigger profit-taking in other asset classes, while the U.S. dollar dragged behind dogged by trade deficit concerns.
Bonds have been among the best performing asset classes in recent years thanks to the unconventional policy easing steps taken by global central banks, but signs are emerging that investors are tired of chasing ever-shrinking yields.
As bond yields rose sharply from Germany to Australia in recent days, stock markets began to flounder.
A key index of Asian shares has fallen 3 percent after hitting a more than seven-year high on April 29. On Wednesday, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.8 percent, while Australian stocks ended down 2.2 percent.
“The current selloff in bonds appears to have been led by developments in the Eurozone markets,” said Ashish Agrawal, an emerging markets strategist at Credit Suisse (CS) in Singapore.
But he also went on to note that monetary policies have generally become more supportive of growth, which could help other asset classes escape the bearish influence of bonds.
“If growth prospects stay intact, it will be too early to conclude that this weakness in bonds will have an impact on other asset classes such as equities,” Agrawal said.
