Asian stocks rally as US Treasury steps in to ease bond fears

After they surged this week to near two-decade highs, HONG KONG: Asian markets rallied Thursday after the US Treasury remarked it would "at least double" the amount of long-term bonds to push down borrowing costs.

Key points

• Fears had been surging after the yield on a 30-year US Treasury on Tuesday hit its highest level since June 2007, before the global financial crisis.
• While Hong Kong, Shanghai, Sydney, Wellington and Manila were additionally well up, tech firms additionally assisted Tokyo higher.
• Three of the 12 voting members of the Federal Open Market Committee dissented from the majority decision to hold rates steady, instead calling for an growth.
• While gold jumped back above $4, 500 for the first time since early June, the dollar stabilised after sinking against its peers.
• Washington's naval blockade on Iran's ports and Tehran's attacks on commercial ships continue, and Iran's armed forces cautioned Gulf countries against assisting the US military on Wednesday.

Meanwhile, the surprise move provided a much-needed shot in the arm for investors worried regarding a spike in 10- and 30-year yields caused by the prospect of inflation staying elevated, administration borrowing and feasible Federal Reserve interest rate hikes.

Shortly after the announcement, US equities reversed losses to end higher while the dollar tumbled against its peers as traders breathed a sigh of relief after a fresh bout of selling.

"This is probably more about the signal the administration wants to send to the market than the size of the operation — it's small potatoes vs the $40 trillion US government debt, " wrote Neil Wilson at Saxo Markets.

I see it as a particularly robust sign that the Treasury has decided higher US yields are unacceptable, and that the recent blowout in the long end is undesirable. Clearly, Donald (Trump) is not happy yields have blown out.

Meanwhile, the positive mood boosted Asia, where tech firms — which rely on debt to pay for their massive AI investments — were pummelled Wednesday.

Seoul led the charge higher, having been the focus of selling pressure the day before.

Meanwhile, the Kospi jumped more than six percent at one point as chipmaker SK hynix rocketed more than 12 percent, supported by Wednesday's announcement by the firm of a $29 billion share buyback aimed at soothing recent worries. Samsung climbed almost nine percent.

"The key question now is whether the fall in yields can last. If oil rates remain elevated and worries over US borrowing continue, pressure on the long end of the Treasury curve could return, " noted City Index's Fiona Cincotta.

Crude rates have been rising for the past two weeks as hopes for a US-Iran agreement to reopen the Strait of Hormuz fade — the deadline for an agreement came up this week.

While both sides lately stated messages were being exchanged, Trump on Tuesday insisted discussions were off, taunting Iran with a social media post depicting the strait as a "NEW U.S. Territory".

Meanwhile, minutes from the Fed's July session demonstrated plenty of policymakers believe interest rate hikes will be necessary if inflation does not decline.

They observed economic activity had continued to expand at a "solid pace", but business investment was concentrated in the AI industry.

Eyes are now on next week's annual session of central bankers, economists and finance chiefs at Jackson Hole, Wyoming, where investors will be hoping for some idea concerning Fed boss Kevin Warsh's thinking on rates.

Taken together, the developments around asian stocks rally as US Treasury steps in to ease bond fears point to a situation that is still moving, and the coming days should bring more clarity.