Asian shares jump, yields rise as Fed readies corp bond buying

TOKYO: Asian shares and Wall Street futures rallied on Tuesday as the formal start of the Federal Reserve’s corporate bond buying programme boosted global investor sentiment and calmed earlier worries about a second wave of coronavirus infections.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 2.2%, its biggest one-day gain since June 1. Australian stocks rose 3.0%, while shares in China rose 1.2%.

U.S. stock futures, the S&P 500 e-minis, were up 0.98% following a late rally on Wall Street on Monday. Treasury yields rose and the yield curve steepened.

The Fed said it will start purchasing corporate bonds on Tuesday in the secondary market, one of several emergency facilities launched in the wake of the coronavirus pandemic.

Global equities had fallen sharply from late last week due to worries about the U.S. economy and confirmation of a new coronavirus cluster in Beijing.

However, the Fed’s corporate bond purchases and data showing new infections in Beijing are under control helped equities quickly reverse course and head higher.

“Equities were overbought and corrected lower, but the S&P 500 has bounced off support because of the Fed,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors in Sydney.

“The markets will continue to go higher a long as economies continue to reopen and as long as the number of coronavirus cases is not large enough to stop the reopening.”

Sentiment in Asia got a further boost after health officials said there were 27 new coronavirus cases in Beijing, down from 36 new cases the previous day.

Japan’s Nikkei stock index and shares in South Korea were both on course for their biggest daily gain in two months.

The Australian dollar rose 0.31% to $0.6942. The Aussie is often traded as a liquid proxy for risk because of its close ties to China’s economy and global commodities.

The yen was little changed at 107.32 per dollar before a Bank of Japan meeting ending later on Tuesday.

No major policy moves are expected, but some investors will focus on any comments about the global debate on capping government bond yields.

The Fed on Monday also announced eagerly-awaited details of its programme to lend funds directly to companies.

Benchmark 10-year Treasury yields notes edged up to 0.7363%, while the spread between two-year and 10-year yields widened to 54 basis points in a sign of improving risk appetite.

Crude oil futures erased gains and fell amid persistent doubts over whether supply cuts would be enough to reduce an oil glut.

U.S. crude fell 1.2% to $36.68 a barrel. Brent crude declined by 1.2% to $39.23 per barrel.