The German 10-year bund yield (Germany:DE10Y-DE) hit a session high of 0.058 percent, its highest level since June 23.
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Asian shares suffered their sharpest setback since June on Monday as investors were rattled by rising bond yields and talk the Federal Reserve might be serious about lifting U.S. interest rates as early as next week. Both are at their highest levels since the United Kingdom voted to leave the European Union in a late-June referendum.
The yield on the 2-year Treasury bond which is most sensitive to Fed rate changes, fell 0.2 basis points over the week but gained 1.2 on the day to 0.790%.
There was further speculation that global central banks would looking to steepen the yield curve in order to strengthen profitability in the banking sector.
Following the lead from a sharp sell-off on Wall Street, Japan’s Nikkei average was down 1.51% while the MSCI index for other shares across the region fell 2.2%. Benchmarks in Australia, Hong Kong, New Zealand and South Korea all sank by more than 2 per cent, while markets including Indonesia, Malaysia and Singapore were shut for holidays.
Earlier on Monday, Treasury Department auctioned $20 billion in 10-year notes at a high yield of 1.699 percent.
Markets have been shaken in recent sessions, with both stocks and long-dated government debt dropping amid questions about upcoming policy decisions from the world’s central banks. Any hint of hawkishness would likely further pressure bonds and equities.
Comments by Federal Reserve Governor Lael Brainard on Monday suggesting there was no rush to raise interest rates had pushed bond yields lower across the region at the start of trade. The Dow shed 2.13% on Friday, while the S&P 500 lost 2.45% and the Nasdaq 2.54%.
The fear of another “flash crash” such as happened last year – when 10-year Bunds rose from 0.16 per cent in late April to 0.77 per cent in just over two weeks, may also be preying on investors’ minds.
While the stock market’s fall was the main driver behind the yen’s firmer showing, the Japanese currency also benefited from its safe haven status in reaction to Democratic candidate Hillary Clinton falling ill at a September 11 memorial ceremony and diagnosed with pneumonia.
The Aussie has lost 1.5% against the yen in two sessions to stand at 77.21, while the Japanese currency was firm on the United States dollar at 102.55. The euro dipped 0.1 per cent to $1.1220 while the yen was all but flat at 101.90 per dollar.
The dollar index, which measures the greenback against a basket of six major currencies, rose 0.2 per cent. It released full-year results yesterday.
Adding to the jittery mood on Monday was news that Democratic candidate Hillary Clinton fell ill at a September 11 memorial ceremony and had been diagnosed with pneumonia.
Last week’s nuclear test by North Korea, its fifth and biggest, has already unsettled global markets.
Oil prices fell on concerns over increased US drilling and as investor took profits on Monday’s gains of almost 1 per cent. Brent crude, the global benchmark, was down 80 cents a barrel at $47.51. And on Monday South Korea’s Yonhap News Agency cited South Korean government sources saying North Korea has completed preparations for another test.
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Brent crude futures LCOc1 gained 0.2 percent at $48.12 a barrel, having recovered from a session low of $46.90, while USA crude CLc1 rose from an intraday low of $44.72 to trade at $46.02, up 0.3 percent.
