Government bonds slid, with the benchmark 10-year U.S. Treasury yield hitting a six-week peak after the Federal Reserve shied away from buying Treasury debt yet as part of its aggressive easing to relieve credit market strains.
The Fed said it was still mulling the extreme move to buy Treasuries but would do so if it would help private credit markets, emphasising its focus on bringing down borrowing rates for consumers and companies through other asset purchases.
The US House of Representatives passed an $825 billion stimulus plan in President Barack Obama’s first legislative achievement since taking office last week, with the debate now shifting to the Senate.
”Investor sentiment has significantly improved after the US House passed the economic stimulus plan. The legislation’s passage points to a high likelihood that additional financial rescue measures will be taken to help banks,” said Lee Sun-yeob, a market analyst at Goodmorning Shinhan Securities.
The move came as US policymakers have begun talking more openly about creating a bad bank to warehouse the toxic mortgage-related assets still tainting the balance sheets of major financial institutions.
The MSCI index of Asia-Pacific stocks outside Japan edged up 1 percent, pulling further away from a six-week low struck last week.
Gains were relatively muted following a 3.4 percent rally in the U.S. S&P 500.
Japan’s Nikkei average rose 1 percent and was up 6 percent so far on the week.
Activity was limited with some countries still on holiday for Lunar New Year. Financial markets in Hong Kong reopened after a three-day break, but markets in China and Taiwan remained closed.
The dollar edged up on relief the Fed chose not to buy long-term Treasuries yet, suggesting the central bank was showing some restraint on using its printing press to pump up the economy.
The euro dipped 0.2 percent to $1.3125, and the dollar was steady at 90.35 yen. The dollar’s rise nudged gold prices down $1.70 an ounce to $883.90.
The New Zealand dollar dropped 0.5 percent to $0.5215 after the country’s central bank slashed rates by 1.5 percentage points to a record low 3.5 percent and left the door open to more cuts to counter a deep recession.
In bonds, 10-year Treasuries dipped 1/32 in price to yield 2.670 percent, little changed on the day after reaching a five-week peak of 2.698 percent in early in early Asia trade.
The slide in Treasuries pushed Japanese government bonds lower, lifting the benchmark 10-year yield 1.5 basis points to 1.270 percent.
US crude oil prices dipped 16 cents to $42.00 a barrel after data the previous day showed a drawdown in distillate and gasoline inventories, while OPEC vowed to implement steep supply cuts by the end of the month.
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