Bond rout pushes cash back into Asian stocks

Asian equities hit three week highs on Wednesday as investors fled a meltdown in bond markets and sought refuge in cash, carry trades and beaten-down sectors such as technology, while the Ukraine conflict's threat to supplies kept oil prices firm.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 1 per cent to its highest since early March, with hefty rises in Hong Kong technology firms leading the way.

In Japan, autos joined in as the Nikkei rose 3 per cent.

European futures were last up 0.8 per cent and FTSE futures up 0.5 per cent, though things were more muted for U.S. futures , which climbed 0.2 per cent after rallying on Tuesday.

Battered e-commerce giant Alibaba, which recently expanded a buyback program, rose 6 per cent and in Tokyo out-of-favour tech investment firm SoftBank Group rose 7 per cent.

"(Stocks) sold off too much and you see a bit of a rally," said Jun Bei Liu a portfolio manager at Tribeca Investment Partners in Sydney, but she added it had the flavour of hedge fund short covering rather than new money piling in.

"We are facing a lot of interest rate increases, which is going to put a lid on valuation. We just won't see the sort of valuation expansion we saw over the last many years."

Still, stocks' resilience has been noteworthy in the face of very heavy dumping of bonds since the U.S. Federal Reserve gave hawkish guidance at its March meeting and chair Jerome Powell sounded even more aggressive in a speech on Monday.

Losses extended in early Asia trade then moderated leaving benchmark 10-year Treasury yields, which rise when prices fall, up 2 basis points (bps) at 2.4009 per cent and having climbed a whopping 58 basis points for the month so far.

Two-year Treasury yields, up 76 bps in March, steadied at 2.1796 per cent.

"The move higher in yields stretching over the past two weeks has been the largest one since the global financial crisis and even then the moves were within a couple of basis points of what we are experiencing now," said NatWest Markets' rates strategist Jan Nevruzi.

"At some point the market might start pricing in an economic downturn, particularly if the Fed embarks on a series of 50 bp hikes."

Disruption

Among the event due later on Wednesday, British inflation data was set to be released at 0700 GMT, while speeches from Powell and Fed officials James Bullard and Mary Daly would also be watched for clues on the rates outlook.

Rising interest rates elsewhere and surging oil prices have sent Japan's yen into a tailspin by sucking money abroad in search of better yields and to pay up for energy imports.

The yen is down 5 per cent on the dollar in March and it made a six-year low of 121.41 in the Asia session.

Higher yielders, among major currencies, have been beneficiaries and the Aussie and New Zealand dollars have hit their strongest levels on the dollar since last November.

Both held near those peaks with the Aussie at $0.7462 and the kiwi $0.6956 late in the Asia session.

The euro held at $1.1036.

Commodity markets have been kept on edge by anticipated supply disruptions from war in Ukraine and were firm against a lack of tangible progress toward peace.

Oil steadied at lofty heights, with Brent crude futures up 1 per cent at $116.67 a barrel and U.S. crude up 1 per cent to $110.34.

Grain prices remained supported by supply concerns, especially for delivery later in the year.

"Those gains are a sign that the market is setting itself to be without much Black Sea supply well into season 2022," said Tobin Gorey, an agriculture commodity strategist at Commonwealth Bank of Australia in Sydney.