Bonds Selloff Deepens As Japanese Stocks Buoyed By Weaker Yen

A selloff in sovereign bonds extended into Asian trading amid speculation major central banks are moving closer to reining in stimulus. Japanese stocks rallied as the yen traded near its weakest level since July. 

Benchmark bond yields in Australia and New Zealand climbed to their highest levels since May after rates on U.S. Treasuries surged this week amid mounting speculation the Federal Reserve will raise interest rates by December. Japan's Topix index climbed to the highest level since April, spurred by gains in banks and exporters, while equities were little changed in other Asian markets that were open. Amazon.com Inc. fell in extended trading after warning it may not make any money in the holiday quarter. A gauge of the greenback's strength held near a seven-month high and South Korea's won weakened. 

Haven assets including the yen and sovereign bonds are losing ground on speculation the global economy is becoming strong enough to withstand a shift away from ultra-easy policies. The probability of a Fed rate hike this year climbed 5 percentage point this week to 73 percent in the futures market and data on Friday are forecast to show U.S. growth gathered pace in the third quarter. Faster-than-expected expansion in the U.K. virtually killed off any prospect of the Bank of England lowering borrowing costs and Bank of Japan Governor Haruhiko Kuroda warned Thursday that longer-term yields may rise. 

"We are seeing a shift, with global central banks unlikely to provide additional stimulus and that's driving bond yields higher and is strengthening the U.S. dollar," said Niv Dagan, the Melbourne-based executive director at Peak Asset Management LLC. "We've had plenty of cautious outlook statements from companies and investors are adding a bit more defensive exposure in their portfolios and taking some profits off the table." 

U.S. data on Friday are forecast to show the world's biggest economy probably expanded at around a 2.5 percent annualized pace in the third quarter, an improvement after a tepid nine months of growth. France will also report on gross domestic product and Russia's central bank has a policy meeting. Euro-area finance ministers meet for talks in Bratislava, Slovakia, and gauges of business and consumer confidence in the region are also scheduled. 

Bonds 

The yield on 10-year U.S. Treasuries was steady at 1.85 percent as of 9:50 a.m. Tokyo time, having surged 26 basis points this month. The rate on similar-maturity Australian bonds climbed five basis points to 2.37 percent and that on New Zealand's debt increased by four basis points to 2.72 percent. 

Bonds have lost 2.9 percent in October, according to the Bloomberg Barclays Global Aggregate Index, on course for their worst month since May 2013. 

Stocks 

Japan's Topix index gained 0.5 percent, while benchmarks in Australia, New Zealand and South Korea fell less than 0.2 percent. Futures on Hong Kong's Hang Seng and Hang Seng China Enterprises Index slipped as much as 0.2 percent in most recent trading. 

Futures on the S&P/500 Index rose 0.2 percent after the underlying benchmark fell 0.3 percent on Thursday. Amazon.com Inc. slumped as much as 9 percent in after-hours trading, while Alphabet Inc. gained after Google's holding company reported revenue and profit that topped analysts' estimates. 

Expectations for higher borrowing costs in the U.S. and the Nov. 8 presidential election are weighing on equities and boosting global bond yields. While companies beat analyst estimates by an average of almost 6 percent in the 15 days since Alcoa Inc. kicked off reporting, the S&P 500 hasn't budged, notching its smallest move over the comparable period since the first quarter of 2015. 

Currencies 

The yen was little changed at 105.23 per dollar following four days of losses. 

The Bloomberg Dollar Spot Index was steady and headed for a fourth weekly advanced. It's climbed 2.4 percent this month, the best performance since May. 

Commodities 

Crude oil was little changed at $49.70 a barrel in New York, after rebounding 1.1 percent from a three-week low in the last session. Saudi Arabia and its Gulf nation allies in the Organization of Petroleum Exporting Countries are willing to cut 4 percent from their peak oil output, Reuters reported Thursday.

© 2016 Bloomberg L.P

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