Asia shares drop as Treasury yields hit fresh highs

Asia's share markets struggled on Wednesday as US Treasury yields hit fresh two-year highs and a global technology stock sell-off unsettled investors over possible inflation and a tighter US monetary policy.

Oil prices hit their highest since 2014 amid an outage on a pipeline from Iraq to Turkey and global political tensions, stoking fears of inflation becoming more persistent and propping up the dollar, which hovered near one-week highs.

MSCI's broadest index of Asia-Pacific shares outside Japan reflected the sombre tone, trading down 0.1 per cent in mid-morning trade after closing lower for four days straight.

Australia lost half a per cent, while Japan's Nikkei slid 1.8 per cent as technology stocks fell and worries over new curbs on businesses to halt a record surge in coronavirus cases curbed risk appetite.

Shares in Sony Group slumped to their lowest level since late October, losing as much as a tenth of their value after gaming rival Microsoft said it will buy developer Activision Blizzard.

Also Read — Sony slides 9% as Microsoft gaming deal casts shadow

Elsewhere, South Korea's Kospi lost 0.3 per cent, while China's blue-chip index was flat and Hong Kong's Hang Seng index bucked the downtrend to rise 0.1 per cent.

"There's probably money rotating out of the United States as there's such a concentrated pool of capital in US equities, specifically in technology companies," said Chris Weston, head of research at brokerage Pepperstone. "You may see some of that capital redistributed."

The prospect of higher US rates continued to play out in fixed income markets, with benchmark US Treasury yields at fresh two-year highs.

Ten-year yields were up about 1 basis point at 1.8860 per cent after hitting as much as 1.8900 per cent, while five-year yields were at 1.6795 per cent, also holding near new two-year highs recorded early in the session.

"It seems as if rates are following the typical historical pattern of increasing into the first Fed hike of the cycle," Rodigo Catril, a senior FX strategist at National Australia Bank, said in a note.

"Another surge in oil prices and ongoing repricing of Fed hike expectations are themes playing in the rates space with the U.S. dollar broadly stronger, benefiting from the combination of higher U.S. Treasury yields and spike in risk aversion," he added.

The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was up at 95.760.

Also Read — Oil rises to seven-year high as Turkey outage adds to tight supply outlook

The Australian dollar was below its 50-day moving average at $0.71905, while sterling held steady at 1.3601.

It will be in focus later on Wednesday when British inflation figures are due, with annual headline inflation expected to reach its highest in almost a decade of 5.2 per cent.

Oil prices rose for a fourth day as an outage on a pipeline from Iraq to Turkey added to worries about an already tight supply outlook amid geopolitical troubles involving Russia and the United Arab Emirates.

US crude jumped 1.49 per cent to $86.70 a barrel. Brent crude rose 1.30 per cent to $88.65 per barrel.

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