SYDNEY, Aug 5 — Share markets slid and bonds rallied in Asia today as fears the United States could be heading for recession triggered mass risk aversion and wagers interest rates will have to fall sharply, and quickly, to support growth.
Japanese 10-year bond yields fell a steep 17 basis points to the lowest since April at 0.785 per cent as markets radically reconsidered the prospect of another hike from the Bank of Japan.Two-year yields sank 50 basis points last week to 3.82 per cent and could soon slide below 10-year yields, turning the curve positive in a way that has heralded recessions in the past.
“Now that the Fed looks to be materially behind the curve, we expect a 50bp cut at the September meeting, followed by another 50bp cut in November,” said economist Michael Feroli. This week has earnings from industrial bellwether Caterpillar and media giant Walt Disney, which will give more insight into the state of the consumer and manufacturing. Also reporting are healthcare heavyweights such as weight-loss drugmaker Eli Lilly.
The Swiss franc was a major beneficiary of the rush from risk, with the dollar near six-month lows at 0.8571 francs . Investors had also increased wagers other major central banks would follow the Fed’s lead and ease more aggressively, with the European Central Bank now seen cutting by 67 basis points by Christmas.