Rising US bond yields drive down Asian stocks

TOKYO (Reuters) — Asian shares fell on Wednesday as a rise in US bond yields above three percent and warnings from bellwether US companies of higher costs drove fears that a boom in corporate earnings may be near its peak.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.3 percent, hitting their weakest in almost three weeks, with tech-heavy Taiwan shares slipping to twomonth lows on worries about slowing semi-conductor demand. Japan’s Nikkei dropped two percent.

European shares are expected to fall, with spread-betters calling a seven to nine percent drop in Britain’s FTSE , Germany’s Dax and France’s Cac .

S&P E-mini futures slipped two percent. Wall Street shares skidded overnight, with the S&P 500 slumping 1.34 percent, the most in two-and-a-half weeks.

Industrial heavyweight Caterpillar beat earnings estimates due to strong global demand but its shares tumbled 6.2 percent after management said first-quarter earnings would be the “high water mark” for the year and warned of increasing steel prices.

“We’ve seen quite a lot of companies announcing above-estimate earnings and their shares falling sharply,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Fujito noted major financial shares such as Goldman Sachs and Citigroup as well as Google parent Alphabet, the first major tech firm to report earnings, have followed a similar pattern.

Corporate earnings are in solid shape, with analysts estimating 21.1 percent growth in the Jan-March quarter among US S&P500 firms, according to Thomson Reuters data.

A similar trend is expected globally. Creeping gains in US Treasury yields are fuelling fears that portfolio managers may move money into safer fixed-income securities at the expense of riskier assets like stocks and emerging markets.

The 10-year yield, a benchmark for global borrowing costs, has been driven steadily higher by a combination of concerns over inflation, growing debt supply, and rising Federal Reserve borrowing costs.

The 10-year US Treasuries yield US10YT=RR rose to as high as 3.009 percent. A break of its January 2014 high of 3.041 percent could turn investors even more bearish.

Fed Funds rate futures prices have been constantly falling this month, pricing in a considerable chance of three more rate hikes by the end of this year.