By Ankur Banerjee, Johann M Cherian and Alun John
SINGAPORE/LONDON (Reuters) -World stocks rose on Tuesday and Treasury yields steadied, allowing a bit of a breathing room for the U.S. dollar as investors took stock of the debt load of the world’s biggest economy.
Investors were still processing Monday’s market moves when Treasuries initially sold off sharply on worries about the U.S. fiscal position, and stocks struggled on Wall Street, before both rebounded in late trading.
That calm was maintained in Asian and European trading, where Europe’s broad Stoxx 600 index gained 0.5%, and Germany’s Dax hit a record high, though S&P 500 share futures dipped. [.EU]
Moody’s downgraded the U.S. credit rating late on Friday, underscoring worries about the impact of a major tax cutting bill proceeding through Congress, which faces a crucial vote later this week.
The U.S. 10-year Treasury yield was last down 2 basis points at 4.45%, having hit a one-month high of 4.56% on Monday, and the 30-year bond yield fell a similar amount to 4.91% after hitting an 18-month high of 5.037% in the previous session. [US/]
“The quick recovery was a bit of a surprise even though we were in the camp of it only having a limited impact,” said Mohit Kumar, chief Europe economist at Jefferies. He said the downgrade was not unexpected given concerns over U.S. debt and deficits.
“What’s really driving the market right now is people are underweight risk, so that’s why whenever you get dips the natural tendency is to buy,” he said.
Risk assets are those like stocks or corporate credit that tend to appreciate when investors are optimistic about the global economy.
However, in a sign of broader market nervousness, Japanese super-long government bond yields soared to all-time highs on Tuesday, with the immediate precipitating factor a poor auction of 20-year securities. [JP/]
The Japanese 20-year yield < JP20YTN=JBTC> jumped as much as 15 bps to 2.555%, its highest since 2000, and the 30-year yield hit a record high of 3.14%.
Japanese government bonds are no exception to the global trend of rising yields, said Hirofumi Suzuki, chief currency strategist at Sumitomo Mitsui Banking Corp.
“Market participants are … assessing demand during each auction, and stability remains elusive. I think that the upward pressure is likely to persist for the time being.”
UNEASY RBA
Global investors had a few other things to process too on Tuesday, and the Australian dollar slipped 0.7% to $0.6414 after the Reserve Bank of Australia lowered interest rates as expected, citing a darker global outlook, though it also remained cautious on further easing.
“With the RBA sounding increasingly uneasy, the path of least resistance for the currency may remain lower,” said Charu Chanana, chief investment strategist at Saxo in Singapore.
“Especially if domestic data softens further or global risks flare up again.”
Elsewhere in Asia Pacific, China’s blue-chip index climbed 0.54% after its central bank cut benchmark lending rates for the first time since October.
Also in the spotlight was a strong Hong Kong market debut from CATL, with the Tesla battery supplier closing up 16%. The company raised $4.6 billion in its Hong Kong listing, the largest in the world this year.
Back in currency markets, the euro was steady at $1.1248, holding onto Monday’s 0.6% gain, and the dollar was down 0.2% against the Japanese yen at 144.48, after sliding on Monday.
In commodities, oil prices were choppy as investors tried to get a grip on a potential breakdown in talks between the United States and Iran over Tehran’s nuclear activity and weakened prospects of more Iranian crude supply entering the market. [O/R]
Brent futures were last down 0.2% at $65.43 a barrel.
Gold was up 0.2% at $3,236 an ounce. [GOL/]
(Reporting by Ankur Banerjee and Johann M. Cherian in Singapore and Alun John in London; Editing by Lincoln Feast, Tomasz Janowski and Emelia Sithole-Matarise)
