By Daniel Leussink

TOKYO, Reuters – Asia’s shares fell Wednesday after U.S. Treasury yields reached new two-year highs. Investors worried about inflation and bracing themselves for tighter U.S. monetary policies were sparked by a sell-off in global technology stocks.

An outage in the pipeline connecting Iraq and Turkey caused oil prices to reach their highest levels since 2014. These events exacerbated fears that inflation would become more severe and supported dollar.

MSCI’s Asia-Pacific share index outside Japan was the most affected by this bleak mood. It lost 0.7% mid-afternoon after having closed lower for four consecutive days.

Australia lost 1.0% while hitting a three month low due to technology stocks falling and concerns over new restrictions on businesses that would halt an unprecedented rise in coronavirus-related cases. The last time it fell was 2.7%.

Stocks Sony (NYSE) Group lost over 10% in October after Microsoft (NASDAQ) announced it was buying Activision Blizzard, a gaming rival.

South Korea’s Kospi dropped 1.0% and China’s bluechip index fell 0.6% despite the expectation of further central bank policy easing. Hong Kong’s trade flattened despite the trend.

The two-year Treasury yields which measure short-term interest rates expectations were at 1.069% last week after reaching as high as 1.075% in February 2020. This was the highest level since February 2020. It is a sign that traders are preparing for an even more aggressive Federal Reserve ahead the U.S. central banks’ policy meeting next Wednesday.

Jefferies’ global equity strategist Sean Darby said, “The rapidity of the short-rate movement… raises concern that Asia may have to follow very rapidly in hiking rates.”

Fixed income markets also saw higher U.S. interest rates, as longer-dated U.S. Treasury yields hit new two-year highs.

After hitting 1.890% in January, ten-year yields rose by about 1 basis point to 1.8842%. Five-year yields reached 1.682% earlier in the session, and were also at near-new two-year highs.

Rodrigo Catril of National Australia Bank (OTC) noted in a note, “It appears as if rates follow the typical historical pattern for increasing into the initial Fed hike of the cycles.”

“Another spike in oil prices, and continuing repricing Fed hike expectations are the themes playing in rates space with U.S. dollars broadly stronger. These themes benefit from the combination U.S. Treasury Yields and spikes in risk aversion,” added he.

The against was at 95.669, which measures the greenback relative to a basket currency of major trading partners.

At $0.71915 the Australian dollar fell just below its 50-day average, but sterling remained steady at 1.3609.

This will come into focus on Wednesday, when British inflation statistics are due. Annual headline inflation is expected to hit 5.2% which would be the highest level in nearly a decade.

An outage at a Turkish-Iraqi pipeline caused oil prices to rise for the fourth consecutive day. This was in addition to concerns about tight supplies due to geopolitical problems involving Russia, Turkey and the United Arab Emirates.

The price of a barrel rose 1.36%, to $86.59 Price per barrel rose to $88.57, an increase of 1.21% [O/R]

The price of gold was slightly higher. Gold was traded at $1.811.35 an ounce. [GOL/]