Stocks in Asia-Pacific fell sharply on Friday following an overnight drop on Wall Street as a rapid rise in bond yields rattled investor sentiment.
In Japan, the Nikkei 225 led losses among the region’s major markets as it fell 3.99% to close at 28,966.01 while the Topix index slipped 3.21% to finish its trading day at 1,864.49. South Korea’s Kospi dropped 2.8% to close at 3,012.95.
Hong Kong’s Hang Seng index plunged 3.64% to close at 28,980.21. Mainland Chinese stocks also fell on the day: The Shanghai composite was down 2.12% to 3,509.08 while the Shenzhen component slipped 2.167% to around 14,507.45.
Australia’s S&P/ASX 200 also saw sizable losses as it fell 2.35% to close at 6,673.30.
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 3.29%.
Bond yields rise
Investors monitored bond yields during Friday’s session. Overnight, the yield on the benchmark 10-year U.S. Treasury note briefly crossed the 1.6% level to trade at its highest level in more than a year.
“Yields are rising because investors are optimistic. They believe a strong sustainable recovery is right around the corner and prices will rise as demand comes roaring back.,” Kathy Lien, managing director of foreign exchange strategy at BK Asset Management, wrote in a note dated Thursday.
Investor optimism about the economic outlook has risen recently on the back of factors such as positive vaccine developments as multiple major economies inoculate their populations.
Destination Wealth Management Founder and CEO Michael Yoshikami said he’s “not terribly surprised” to see the 10-year Treasury yield reach the 1.5% to 1.6% level.
“I think if you start getting above two, two-and-a-quarter, okay then we start to get concerned. But frankly, I just don’t see the inflationary pressure in the economy right now even with the stimulus package coming,” Yoshikami told CNBC’s “Squawk Box Asia” on Friday.
U.S. bond yields eased in the afternoon of Asia trading hours on Friday. The yield on the 10-year was last at 1.4719%, while the yield on the 30-year Treasury bond sat at 2.2636%. Yields move inversely to prices.
In Asia-Pacific, the yield on the Australian 10-year bond slipped to 1.834% after touching a high of 1.973% earlier. The 10-year Japanese government bond’s yield also declined to 0.156%. Earlier, the yield on the 10-year JGB had risen as high as 0.181% — a level not seen since early 2016, according to FactSet.
