Global stocks rise as bond markets stabilise after sell-off

Stocks in Asia rose as global bond markets stabilised after wild swings last week, while oil prices climbed and the UK pound rallied on optimism over Britain’s economic recovery.

Japan’s Topix index was up 2 per cent on Monday afternoon while Australia’s benchmark S&P/ASX 200 climbed 1.7 per cent. China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks and Hong Kong’s Hang Seng each added 1.3 per cent.

In sovereign bond markets, the yield on 10-year Australian government bonds dropped 0.25 percentage points to 1.651 per cent, while that on New Zealand bonds with the same maturity dropped 0.17 percentage points to 1.722 per cent. Yields fall as bond prices rise.

The gains for Asia-Pacific equities and bond prices followed a rebound in US government debt at the end of last week. The 10-year US Treasury yield was unchanged at 1.403 per cent in Asia trading on Monday after dropping 0.11 percentage points on Friday from a 12-month high the previous session.

Futures markets pointed to gains for US stocks when Wall Street opens on Monday, with the S&P 500 expected to climb 0.7 per cent after dropping 0.5 per cent on Friday. The FTSE 100 was set to rise 0.9 per cent.

Volatility in global debt and equity markets has been stoked by widening concerns among investors that a broad economic recovery from the pandemic could spur inflation, prompting central banks to withdraw unprecedented monetary policy support.

“Global real yields could rise further,” said Robert Buckland, chief global equity strategist at Citigroup. “This is bad for equity markets, especially those tilted towards highly rated growth stocks.”

He said this was particularly so in the US, where the valuations of big tech companies have been buoyed by low rates.

While low rates increase the current value of tech groups’ future cash flows, the present value of future earnings falls if rates rise.

Inflation expectations were heightened further at the weekend when the US House of Representatives passed President Joe Biden’s $1.9tn coronavirus stimulus package, months after earlier support measures expired.

Those expectations also fed through to commodities markets, including oil prices. Brent crude, the international benchmark, added 1.6 per cent to $65.42 a barrel while West Texas Intermediate, the US marker, rose by the same amount to $62.47.

In currencies, sterling climbed 0.4 per cent against the US dollar to $1.3991. The UK government signalled that the country’s economic recovery, bolstered by the vaccine rollout during the past few months, would help stave off greater tax rises by filling more of the gap in government revenues produced by the pandemic.