Weak Bank Shares an Early Drag on Asia Pacific Markets

Early Thursday, the yield on the 30-year Treasury bond dropped to a record low in the morning of Asian trading hours, breaking the 2% level for the first time, according to Reuters.
James Hyerczyk
Asia Pacific Shares

The major Asia Pacific indexes are trading sharply lower Thursday morning amid concerns over a U.S. recession after the main yield curve in U.S. Treasurys inverted. The moves in Asia are being fueled by a steep sell-off in U.S. equities on Wednesday, led by the Dow Jones Industrial Average, which plunged 800.49 point to finish at 25479.42. This was the worst percentage loss of the year and the fourth largest drop of all time.

At 01:54 GMT, Japan’s Nikkei 225 Index is trading 20297.61, down 357.52 or -1.73% and Hong Kong’s Hang Seng Index is at 25036.38, down 265.90 or -1.05%. The market is closed in South Korea.

In Australia, the S&P/ASX 200 is trading 6460.80, down 135.10 or -2.05% and in China, the Shanghai Index is at 2774.02, down 34.90 or -1.24%.

Bank Shares Pounded

Bank shares in the Asia Pacific arena were down hard on Thursday, mostly in reaction to a plunge in the U.S. sector on Wednesday. In Japan, shares of Mitsubishi UFJ Financial Group dropped 1.88% and Nomura fell 2.18%. In Australia, the financial subindex declined more than 1.5% as the so-called Big Four banks weakened.

In the U.S., declines in several major bank stocks dragged the entire financial sector in a correction Wednesday as industry leaders like Morgan Stanley, Goldman Sachs and Wells Fargo fell further into bear market territory.

Other major banks like Citigroup, J.P. Morgan Chase and Bank of America, though not yet in a bear market, were all in correction territory, down more than 10% from their 52-week highs.

The SPDR S&P Regional Banking ETF fell to a bear market level, down more than 20% from their recent highs.

Treasury Yield Curve Inversion the Catalyst

Traders are saying it was a yield curve inversion that turned the market into sellers on Wednesday after the previous session’s strong performance was fueled by a delay in the tariffs on China by the United States.

The yield on the benchmark 10-year Treasury note briefly broke below the 2-year rate overnight, “an odd bond market phenomenon that has historically been a reliable indicator of economic recessions,” according to CNBC.

Early Thursday, the yield on the 30-year Treasury bond dropped to a record low in the morning of Asian trading hours, breaking the 2% level for the first time, according to Reuters.

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