By Kevin Buckland
TOKYO (Reuters) – Asian stocks slumped on Wednesday as a sharp rise in U.S. bond yields unnerved investors ahead of key inflation data that could inform the pace of Federal Reserve policy easing.
Short-term Treasury yields jumped to the highest since late July overnight as the market reopened after the Veterans Day holiday, spurring the U.S. dollar to a more than three-month peak versus the yen in the latest session.
Bond yields have soared since Donald Trump was elected back to the White House last week on expectations lower taxes and higher tariffs will push up the fiscal deficit and increase government borrowing. Trump’s proposed policies are also seen by analysts as fuelling inflation, potentially impeding the path to lower Fed interest rates.
Those same expectations had propelled U.S. stocks to record highs, but the rally stalled overnight as bond yields rose.
“It all continues to be a part of the Trump trade, which, at its core, is about deeper deficit spending,” said Kyle Rodda, a senior financial markets analyst at Capital.com.
“However, as has proven the case in other market melt-ups, a tug-of-war eventually emerges between stocks and bonds, as higher risk-free rates strangle valuations.”
Bitcoin inched back toward its all-time high from overnight just below $90,000, with markets betting on Trump to usher in an easier regulatory environment after pledging to make the United States “the crypto capital of the planet”. It last traded at around $88,195.
Commodities were broadly weaker as traders worried about the outlook for key consumer China, which stands to bear the brunt of Trump’s threatened trade tariffs. Stimulus announcements from Beijing so far have failed to stir much optimism over an economic revival.
Hong Kong’s Hang Seng slid 0.9% as of 0147 GMT, with a subindex of mainland Chinese property stocks slumping 1.3%. China’s blue chips were flat.
Japan’s Nikkei and South Korea’s Kospi sagged 1.1% and 1.2%, respectively, while Australia’s stock benchmark fell 1.1% under the weight of commodity shares.
U.S. S&P 500 futures also pointed about 0.1% lower following a 0.3% decline overnight.
The two-year Treasury yield stood at 4.34% after leaping to 4.367% on Tuesday for the first time since July 31. The 10-year yield hovered around 4.43%, not far from the four-month high of 4.479% reached a week ago in the immediate aftermath of Trump’s sweeping victory.
The dollar edged up to as high as 154.94 yen for the first time since July 30 before last changing hands at 154.56 yen.
