Dam on U.S. two-year bond yield bursts

People walk past an electronic screen showing Japan’s Nikkei stock price index inside a conference room in Tokyo, Japan June 14, 2022. REUTERS/Issei Kato

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Aug 30 (Reuters) – A preview of the day ahead in Asian markets from Jamie McGeever

Another barrage erupted, with the two-year US Treasury yield rising to a 15-year high just below 3.50%, flooding global markets with further uncertainty and fear.

Wall Street managed to recoup some of its earlier losses on Monday but still closed in the red, a notable development given the extent of Friday’s selloff. The inability to rebound at all is a reflection of the current nervousness of investors.

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Not only do they have to adjust to a hawkish Federal Reserve, but the European Central Bank also appears poised to pick up the pace of interest rate hikes. Bonds are selling globally, the dollar is soaring, and no corner of the investment world is spared the fallout.

The magnitude of the rise in two-year US bond yields is truly remarkable – a year ago it was just 16 basis points, today it has reached 350 basis points. With the Fed likely to continue tightening, few would bet against another hike.

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China’s setbacks don’t help either. The yuan has fallen to a two-year low against the dollar and the psychological barrier of $7.00 is within reach.

Chinese corporate earnings reports on Tuesday could give further clues about the health – or otherwise – of the real estate and financial sectors, with ICBC, Bank of China, China Construction Bank and China Resources Land all reporting first-half results.

Jobs data from Japan topped Asia’s macro calendar on Tuesday – the jobless rate is expected to hold steady at 2.6% – while rising rates are expected to dampen home building approvals in Australia.

Key developments that should further guide markets on Tuesday:

Unemployment in Japan (July)

Australian Building Permits (July)

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Reporting by Jamie McGeever in Orlando, Fla.; Editing by Paul Simao

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and non-partisanship by principles of trust.

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