‘Key Reason’
“This may be counter-intuitive as many people would assume that risk gets bid and safety gets sold, driving yields higher, however, our breakdown of drivers for the Treasury curve indicates that a fall in inflation expectations was the key reason why nominal yields fell in the longer tenors,” DBS Bank Ltd. analysts including Eugene Leow and Philip Wee wrote in a research note.
The U.S. two-to-10-year yield curve had briefly inverted on Tuesday, often taken as a sign of an impending economic recession. That speculation still looks premature, according to Pacific Investment Management Co.
Investors are having to navigate a lot of uncertainties, which makes for an “uneasy” rally, said Shane Oliver, head of investment strategy at AMP Capital Investors Ltd. in Sydney. “The backdrop is unfavorable, unlike in 2020 when the share markets were looking forward to stronger economic growth, the Covid crisis easing and very low inflation,” he said.
While oil has clawed back Tuesday’s losses, equity investors have sold stocks linked to commodities. The South Korean won and Taiwan dollar, which are driven by their interest-rate sensitive tech-heavy bourses, both strengthened.
“Equity-sensitive currencies like the Korean won and Taiwanese dollar should benefit as inflows return,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore. “The fall in oil prices should also provide some respite for the currencies of major oil importers in the region like the Indian rupee.”
--With assistance from Emily Barrett.
This article was provided by Bloomberg News.