TOKYO, Feb 8 (Reuters) – Asian shares hit six-week lows on Thursday as U.S. bond yields climbed to four-year highs as investors worried that years of low borrowing costs for companies could be threatened by rising interest rates and inflation .
U.S. congressional leaders struck a two-year budget deal that boosted government spending by nearly $300 billion, a rare bipartisan move that helped risk sentiment but also sharply widened the federal deficit.
“The increase is much larger than the market expected a few months ago. It will have as big an impact as the tax cut. As the market has not yet priced in this, U.S. bonds may sell off for another week or so,” said Tomoaki Shishido, fixed income analyst at Nomura Securities.
The 10-year U.S. Treasury yield rose back to 2.813%, near Monday’s four-year high of 2.885%.
That has made investors nervous, as the prospect of rising global interest rates has sparked a massive sell-off in stocks over the past few days. The rising cost of dollar funding is bad for companies not just in the United States but around the world.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.1 percent in early trade on Thursday, near a six-week low hit on Tuesday.
Japan’s Nikkei rose 0.6%, but is still down more than 6% so far this week.
MSCI’s broadest gauge of equities around the world had fallen in seven of the past eight sessions through Wednesday, down 6.8 percent over the period.
U.S. stocks lost momentum on Wednesday after a morning surge, with the S&P 500 closing down 0.50% and the Nasdaq Composite down 0.9%.
The Cboe Volatility Index, or VIX, which is often viewed as a gauge of fear among investors, fell 2.3 points to 27.73, but was still more than double the level prevailing over the past few months.
The dollar rose against several currencies after Washington reached a debt ceiling deal.
The dollar index rose to a two-week high of 90.403 on Wednesday and was last at 90.291.
The euro fell to $1.2271, near its lowest level in two weeks.
Southern European government bond yields tumbled on Wednesday after Germany’s pro-European, pro-spending Social Democrats took over the finance ministry in a coalition government.
The dollar was at 109.41 yen, recovering from Wednesday’s low of 108.92.
The New Zealand dollar fell to a four-week low after the Reserve Bank of New Zealand cut its inflation forecast for 2020, while saying this week’s stock market volatility was a warning sign that global markets are nervous about the risks of rising inflation and rising interest rates.
The New Zealand dollar was at $0.7230 after falling to $0.7209, its lowest point on Jan. 11.
Precious metals also fell, with gold hitting a four-week low of $1,311.6.
One outlier is the Chinese yuan, which has continued to strengthen, with the Thomson Reuters/HKEX Global RMB Index hitting a two-year high, already up 1.7% in the first week of February.
Oil prices fell after U.S. data showed rising inventories and record crude production, sparking fears of more selling.
Brent crude futures fell to a six-week low of $65.16 a barrel.
U.S. crude futures hit a one-month low of $61.25 a barrel and were last at $61.65.
Edited by Shri Navaratnam