Asian Stocks Up as Bonds Steady, But Inflation Worries Persist By Investing.com

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By Gina Lee

Investing.com – Asia Pacific stocks were mostly up Tuesday morning, clawing back some gains following their U.S. counterparts’ fluctuation during the previous session.

Hong Kong’s rose 0.97% by 10:30 PM ET (3:30 AM GMT). Bookings for the city’s residents to be inoculated with Sinovac’s Coronavac vaccine opened earlier in the day. Debate on reforming the continued, with Chief Executive Carrie Lam telling a press conference earlier in the day, “it is crystal clear we have reached a stage where the central authorities will have to take action to address the situation, including electoral reform.”

China’s was up 0.34% while the fell 0.60%.

South Korea’s was down 0.51% while in Australia, the gained 0.54%. Japanese markets were closed for a holiday.

Investors are now re-evaluating expectations for a quick recovery from COVID-19 and the inflation that is driving both commodities and bond yields up. The rally in global shares in 2020 in the wake of COVID-19 is also under scrutiny as the cost of longer-term borrowing rise.

Concerns over the rising bond yields have even made their way up to policymakers, with European Central Bank (ECB) President Christine Lagarde saying on Monday that her institution is “closely monitoring” the market for government bonds.

There are also rising concerns that shares have already priced in a good part of the global economic recovery expectations that have been driven by global COVID-19 vaccine rollouts and the prospect of further U.S. stimulus packages. There are also concerns that central banks such as the ECB led by Lagarde will eventually ease emergency fiscal programs that have boosted global markets.

The key drivers of equities “may be fading as markets come to terms with the next phase of the recovery … I wouldn’t be surprised if market returns are more volatile in the coming months. My approach to fixed income would be to look for opportunities to start to buy the long end again,” AXA Investment Managers chief investment officer Chris Iggo told Blomberg.

Bond markets steadied after the gap between five and 30-year yields, a key part of the U.S. Treasury curve, climbed to the highest level in over six years. Cash Treasuries will not be traded on Tuesday on account of the Japanese holiday.

Other investors were also pessimistic.

“The sell-off in bonds is like a car crash in slow motion for equity investors … a higher interest rate environment forces investors to consider the opportunity costs of investments. Stocks that have significant borrowing, or produce no income for investors, may be particularly vulnerable,” CMC Markets chief market strategist Michael McCarthy told Reuters.

Elsewhere, traded below the $53,000 mark after dropping as much as 17% Monday.

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