Asian shares lost ground on Wednesday, tracking declines on Wall Street as investors fretted over economic uncertainties that caused a spike in US benchmark bond yields and pushed the dollar to a more than 10-month high.

Doubts are re-emerging over the global recovery at a time when the US Federal Reserve is set to taper stimulus and the Biden Administration is stuck in contentious debt ceiling negotiations that could lead to a government shutdown.

Rise in yields

Benchmark 10-year rates have gained 25 basis points in five sessions and were last at 1.5513 per cent, having hit their highest since mid-June the day before, while the dollar index was at 93.752.

“We think (10-year treasury yields) are likely to around 1.5 per cent to 1.75 per cent, so they obviously still have room to go,” said Daniel Lam, senior cross-asset strategist at Standard Chartered.

Lam said the rise in yields was driven by the fact that the United States was almost definitely going to start tapering its massive asset purchases by the end of this year, and that this would drive a shift from growth stocks into value names.

He said this change would be unlikely to significantly reverse recent flows from Asian to US equities as policy moves are generally less supportive in Asia than the United States and Europe at present, and thus “opportunities in Asia will betactical and short term.”

Higher yields and the strong dollar hurt Asian equities in early trading. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.43 per cent with Australia off 1.5 per cent, and South Korea falling 2.06 per cent.

The Hong Kong benchmark shed 1.2 per cent and Chinese bluechips were 1.1 per cent lower.

Japan’s Nikkei shed 2.35 per cent hurt by the general moodas the country’s ruling party votes for a new leader who will almost certainly become the next Prime Minister ahead of a general election due in weeks.

Also on traders’ minds was cash-strapped China Evergrande Group, whose shares rose as much as 12 per cent after it said it plans to sell a 9.99 billion yuan ($1.5 billion) stake it owns in Shengjing Bank Co.

Evergrande is due to make a $47.5 million bond interest payment on its 9.5 per cent March 2024 dollar bond, having missed a similar payment last week, but it said in the stock exchange filing the proceeds of the sale should be used to settle its financial liabilities due to Shengjing Bank.

Currency

In currency markets, the strong dollar meant that the yen traded near its lowest since early 2020, while the euro hit a month low overnight.

Oil prices dropped having touched a near three-year high the day before. Brent crude fell 0.83 per cent to $78.25 per barrel. U.S. crude dipped 1.09 per cent to $74.47 a barrel.

Gold edged higher with the spot price at $1,735.6 anounce, up 0.1 per cent from the seven-week low hit the day before as higher yields hurt demand for the non-interest bearing asset.

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