GLOBAL MARKETS Bonds lose as interest rate hikes hit;  yen in focus

GLOBAL MARKETS Bonds lose as interest rate hikes hit; yen in focus

By Tom Westbrook

SYDNEY, Sept. 23 (Reuters) Asian equities stumbled into a fourth consecutive weekly decline on Friday and bonds suffered heavy losses as investors tried to catch up with the US Federal Reserve’s interest rate outlook, while currency markets were on edge at the end of a wild week.

Fed members’ forecasts of aggressive hikes and continued high interest rates in the coming year have sparked another round of dollar purchases that have sent other assets to flight.

world stocks .MIWD00000PUS hit its lowest level in two years on Thursday, falling 3% this week. The euro and yen fell to 20-year lows and on Thursday, Japanese authorities entered the market for the first time since 1998 to buy the yen and halt the decline.

The resulting spike has the yen JPY=EBS to 142.20 per dollar and on track for the best week in more than a month and has put the brakes on broader dollar gains for now. FRX/

In Regional Markets MSCI’s Broadest Index of Asia-Pacific Stocks Outside of Japan .MIAPJ0000PUS fell by 0.5% to its lowest point in two years. It is down 3% this week. Japanese Nikkei .N225 was closed for a holiday on the occasion of the autumnal equinox.

Overnight, Wall Street indices fell and longer-dated US Treasuries were dumped, pushing 10-year yields higher US10YT=RR rose about 20 basis points to 3.71% – as traders spent some time trying to adjust to the prospect of US interest rates above 4%.

“The 10-year was catching up on the newly calibrated cash interest rate,” said Damien McColough, Westpac’s head of rates strategy, in Sydney.

“If you think the front end will peak at 4.60%, can you really hold the 10-year bond yield at 3.70%?” he said.

“It’s very skittish price action… I think this short-term volatility will continue in all markets (until) the interest rate market settles down.”

S&P 500 futures ESc1 floated 0.1% higher and European futures STXEc1 rose 0.4% early in the Asia session.


Interest rates are rising sharply almost everywhere in the world, with Britain, Sweden, Switzerland and Norway among the hikers this week, leading to heavy selling in European bond markets, especially government bonds. 0#GBBMK=. NL/

But the Fed’s outlook has overshadowed that in the foreign exchange market, as both security flows and higher yields help the greenback, while an energy crisis and war ahead weigh heavily on the euro.

Preliminary production surveys in Europe and Britain’s new finance minister announcing his “Growth Plan” mark the day ahead.

The euro EUR=EBS was most recently at $0.9844, a fraction from Thursday’s 20-year low of $0.9807 — though all eyes are on the yen.

Japan has not disclosed the size or details of its purchase of the yen, but the dollar/yen fell two large legs during trading in Asia and London on Thursday and the risk of another one is likely enough to deter speculators for a while.

“It changes market dynamics in terms of risk-reward for short-term players,” said UBS strategist James Malcolm.

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