Asian Shares Slump as Bond Yields Surge amid Hawkish Fed Stance

On Wednesday, Asian shares plummeted amid potential Fed-sanctioned monetary policy tightening to counter inflation as Western nations gathered to impose additional sanctions on Russia for its February invasion of Ukraine.

According to Reuters, U.S Treasury yields soared to multi-year highs, while stock markets turned bearish after U.S. Federal Reserve Governor Lael Brainard revealed that the central bank’s balance sheet runoff coupled with upcoming interest rate hikes could place the monetary policy in a "more neutral position" towards the later part of 2022. The two-year U.S. Treasury yields surged to a three-year high, while its five-year yields soared to the highest level since December, 2018.

This comes ahead of the release of the Fed’s March meeting minutes on Wednesday which will afford markets more clarity on the monetary policy outlook, in addition to information on the central bank’s plans to trim its $9 trillion balance sheet.

MSCI's broadest index of Asia-Pacific shares outside Japan dropped by 1.4% by 1:20am ET, while Japan’s Nikkei inched down by 1.7%. Hong Kong’s Hang Seng index dipped by 1.4% after markets resumed following a holiday, while Chinese blue chips edged lower by 0.46%.

IG Markets analyst Kyle Rodda contended, "It's currently considered an 80% chance the Fed will take that course." He added, "There's expectation the Fed could hike 50 bps in June too, and if that becomes more likely, then a repricing of those risks could spark another spike in volatility."

©Photo: REUTERS/Kim Kyung-Hoon