Bond yields keep falling, stocks try to steady

SYDNEY: Global bond yields continued to spiral lower in Asia yesterday as recession fears fed expectations of more policy easing by major central banks, though some share markets in the region did manage to steady after an early sell off.

Sterling was also hit by a bout of Brexit blues after a round of votes in the UK parliament failed to produce any new plan to manage its divorce from the European Union.

A Reuters report that the United States and China had made progress in all areas in trade talks seemed to bolster sentiment a little, though sticking points still remained and there was no definite timetable for a deal.

MSCI’s broadest index of AsiaPacific shares outside Japan recouped early losses to be almost flat, as did Shanghai blue chips.

Japan’s Nikkei still fell 1.4 per cent, while E-Mini futures for the S& P 500 were off 0.2 per cent.

Worries that the inversion of the US Treasury curve signalled a future recession only deepened as 10-year yields fell to a fresh 15month low at 2.34 per cent.

“We think that the ongoing flattening, or outright inversion, of the curve is a bad sign for equities, as it usually has been in the past,” said Oliver Jones, markets economist at Capital Economics.

“Arguments that the yield curve is no longer a reliable indicator seem to resurface every time it inverts, only to be subsequently proved wrong.”

The latest lunge lower was led by German bunds where 10-year yields dived deeper into negative territory after European Central Bank President Mario Draghi said a hike in interest rates could be further delayed.

Plans to mitigate the side- effects of negative interest rates could also be considered, suggesting the central bank was preparing for an extended period below zero.

That shift came hot on the heels of a dovish surprise on Wednesday from the Reserve Bank of New Zealand, which abandoned its neutral bias to say the next rate move would likely be down.

Yields in both New Zealand and neighbour Australia, quickly sank to record lows in response.

The RBNZ explicitly cited all the easing moves by other central banks as a reason for its turnaround since they had put unwanted upward pressure on the local dollar. — Reuters