GLOBAL MARKETS-U.S. yields sink with dollar on dovish Fed bets; HK shares dip

Author: Kevin Buckland

TOKYO, Nov 25 (Reuters) – Long-term U.S. government bond yields fell to their lowest in more than seven weeks on Friday, while the dollar fell back to recent lows against major rivals as markets continued to digest weak signals from the Fed reserves.

Expectations of a less aggressive pace of U.S. monetary tightening starting next month continued to support some Asian stock markets, but Hong Kong’s Hang Seng fell as record-breaking COVID-19 infections in China clouded the outlook.

The yield on 10-year government bonds fell to 3.65% in Tokyo trade, the lowest since Oct. 5, after the US Thanksgiving holiday on Thursday. The two-year yield slipped to a one-week low of 4.424%.

The dollar index, which measures the dollar against the euro, yen and four other rivals, retreated 0.11% to 105.76, returning to Thursday’s low of 105.62.

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A “substantial majority” of Fed policymakers agreed that it would “probably be appropriate soon” to slow the pace of interest rate increases, minutes from their latest meeting on Wednesday showed.

Futures markets show investors now see US rates peaking just above 5% around May, pricing in a roughly two-thirds chance the Fed will slow a half-point hike on Dec. 14 from a series of 75-basis-point hikes.

“More and more market participants are becoming convinced that the peak in long-term yields has passed and we are slowly moving towards a Fed break,” said Naka Matsuzawa, chief Japanese macro strategist at Nomura in Tokyo.

US S&P 500 E-mini futures showed 0.25% higher to resume trading on Wall Street on Friday.

Equity markets in Asia Pacific were mixed, with Australia’s benchmark up 0.24%, but a sell-off in Hong Kong shares weighed on sentiment elsewhere in the region.

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The Hang Seng fell 0.86%, led by a 2.29% decline in the technology sector.

The Japanese Nikkei fell by 0.36 percent, and the South Korean Kospi by 0.08 percent.

China reported another record-high number of daily COVID-19 infections on Friday, with cities across the country imposing localized lockdowns, mass testing and other restrictions, extinguishing recent hopes that the world’s second-largest economy would move away from a strict zero-fighting policy against COVID on living with the disease. .

“Investors are rightly concerned,” said ING economist Rob Carnell. “China doesn’t have an adequate health network to deal with a full-blown outbreak with many sick people.”

“Some kind of mid-term life with COVID is a nice dream, but how do you get there?” Carnell added.

Mainland China blue chips, however, rose 0.54%, boosted by additional government measures to support a slumping property market. The developer’s share index rose by 5.84%.

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Oil prices rose in Asia on thin liquidity, paring some of their declines in a week marked by concerns over Chinese demand and haggling over a Russian oil price ceiling in the West.

Brent crude futures rose 28 cents, or 0.33%, to $85.62 a barrel.

U.S. West Texas Intermediate (WTI) crude futures were up 49 cents, or 0.49%, from near $78.43 a barrel on Wednesday. There was no WTI settlement on Thursday due to the US Thanksgiving holiday.

Both contracts remained on track for their third consecutive weekly decline, on track to fall around 2%.

Gold rose 0.2% to around $1,758 an ounce on dollar weakness.

(Reporting by Kevin Buckland; Editing by William Mallard and Kim Coghill)

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