Treasury Selloff Hits Asia on Pared Rate Bets: Markets Wrap

(Bloomberg) — Heavy selling in Treasuries Friday rippled across Asian debt markets early Monday, weighing on government bonds in Australia and New Zealand after US jobs data forced investors to push out rate cut bets.

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The 10-year Australian and New Zealand yields rose by around 10 basis points in early trading, after their US equivalent rose 14 basis points Friday. Those on two-year Treasuries jumped as much as 20 basis points to over 4.4%, the biggest one-day spike since March.

The dollar strengthened against major currencies early Monday.

The action Friday was driven by a nonfarm payroll report that showed US companies boosted payrolls in January by the most in a year, while prior months were also revised upward.

Investor bets for a rate cut in March by the Fed tumbled Friday to around 20% from almost 40% on Thursday, as economic resilience reduces the likelihood of imminent policy easing.

Despite forecasts for a March cut weakening, “this market still expects five rate cuts this year,” said Ed Yardeni, president of Yardeni Research, in a note. “Fed officials are likely to continue to push back against that notion of so much cutting,” he said.

Australian shares and Hong Kong futures fell, while contracts for Japan rose.

Investors will be looking for further clues on Fed policy when Chair Jerome Powell appears on CBS’s 60 Minutes at 7.00pm Eastern Time Sunday — that’s 8.00am in Hong Kong Monday.

Oil prices rose following US and UK strikes against Houthi targets over the weekend. The Iran-backed Houthis have vowed to respond. The price of West Texas Intermediate rose around 0.8% in opening trade Monday, after falling 7.4% last week, its largest one-week decline since October.

In Asia, Australian trade balance and composite PMI data is set for release, ahead of Tuesday’s Reserve Bank of Australia interest rate decision. Elsewhere, PMI data is also due for Japan, India and China.

China Vows

Investors will be closely watching Chinese equity markets, which fell Friday to extend a prolonged slump. Following the heavy selling, the China Securities Regulatory Commission vowed on Sunday to prevent abnormal fluctuations, saying it would guide more medium- and long-term funds into the market.

A gauge of US-listed Chinese companies fell more than 1% in New York on Friday, echoing similar declines for mainland China benchmarks.

Elsewhere, former US President Donald Trump also signaled he may impose a tariff on Chinese goods of more than 60% if elected, in a fresh round of hawkish rhetoric aimed at the largest supplier of goods to the US.

Investors in Asia will also be gauging the impact of fresh record highs for US stocks after the S&P 500 climbed 1.1% to a new peak on Friday. A strong run of performance for the benchmark comes as February dawns — historically one of the rockiest times of the year for US stocks.

Key events this week:

China Caixin Composite PMI, Monday
Eurozone S&P Global Services PMI, PPI, Monday
Australia rate decision, Tuesday
Eurozone retail sales, Tuesday
Germany factory orders, Tuesday
Poland rate decision, Wednesday
Thailand rate decision, Wednesday
Cleveland Fed President Loretta Mester and Philadelphia Fed President Patrick Harker speak, Tuesday
Fed Governor Adriana Kugler, Richmond Fed President Tom Barkin speak, Wednesday
Bank of England Deputy Governor Sarah Breeden speaks, Wednesday
CPI data for Brazil, China, Chile, Mexico, Russia, Thursday
US initial jobless claims, Thursday
US Treasury Secretary Janet Yellen speaks at a Senate banking committee hearing, Thursday
Pakistan general election, Thursday
ECB Chief Economist Philip Lane, ECB Governing Council member Pierre Wunsch speak, Thursday
European Central Bank publishes economic bulletin, Thursday
Canada unemployment, Friday
China aggregate financing, money supply, new yuan loans, Friday
Germany CPI, Friday
Australian Reserve Bank Governor Michele Bullock delivers parliamentary testimony, Friday