US Treasury yields plumbed new depths and stocks across Asia sold off on rising coronavirus cases outside China, as investors raised their bets on the Fed cutting rates again.
In early trading in the region on Friday, Japan’s Topix index fell 3.3 per cent as the yen — seen as a haven during times of uncertainty — added 0.3 per cent to touch a six-month high of ¥105.82 per dollar.
The benchmark is the world’s worst performing big equity index in 2020 and is on track for its fourth week of losses.
China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks dropped 1.3 per cent in early trading, bringing it down from a two-year high notched on Thursday. Australia’s S&P/ASX 200 was down 2.3 per cent.
South Korea’s Kospi fell 2.4 per cent as the country’s health agency reported 518 new cases of Covid-19 as of Thursday, more than Wednesday’s total.
Investors’ flight to safety was also evidenced by the latest fall in US government bond yields. On Friday morning the 10-year yield fell 10 basis points to a new record low 0.8102 per cent. The 30-year Treasury yield dropped as much as 11bp to an all-time low of 1.4247 per cent. Yields fall as bond prices rise.
Bond yields have tumbled this week as investors predict that central banks will have to take action to cushion the economic blow from the Covid-19 outbreak, which has disrupted global supply chains.
The Federal Reserve earlier this week cut interest rates by 50bp following an emergency meeting. Futures markets have priced in another 50bp reduction when Fed policymakers meet March 17-18. They imply a 75 per cent chance there will be a further 25bp cut at the central bank’s April meeting.
The S&P 500 dropped 3.4 per cent overnight. Bank shares tumbled on fears falling yields in their bond portfolios could hit their profit margins. Futures showed US stocks heading for a fall at Friday’s open on Wall Street, with the S&P 500 expected to drop another 1.1 per cent. The FTSE 100 was set to drop 2 per cent.
Investors are also concerned about how coronavirus outbreaks in Japan and South Korea will hit two of Asia’s biggest economies. S&P Global Ratings on Friday forecast it would blow a $211bn hole in regional economies this year, cutting Asia-Pacific’s annual growth rate to the lowest level since the global financial crisis.
“Household spending in Japan and Korea is set to weaken further and slower growth in the US and Europe will add to external headwinds,” said Shaun Roache, S&P’s Asia-Pacific chief economist.
Brent crude, the international benchmark, fell 1 per cent to $49.48 a barrel. US marker West Texas Intermediate also slipped 0.9 per cent to $45.48.
Additional reporting by Jamie Smyth in Sydney