Stocks Edge Down After Weak Bond Auction in Japan: Markets Wrap

(Bloomberg) -- Asian shares made modest moves as investors avoided taking long-term risky bets ahead on US payrolls data Friday.

A regional gauge swung to a loss as Japanese stocks extended declines after demand at a 30-year government bond auction was weaker than average. The yield on 10-year US Treasuries advanced 2 basis points. Bonds had rallied across the curve Wednesday as data showed a contraction in US service providers and a deceleration in hiring. The dollar was weaker against all its Group-of-10 peers in Asian trading.

Investors are mostly staying on the sidelines as they await key economic data from the US Friday, which will provide clues on the direction of the markets. US economic activity has fallen slightly in recent weeks, indicating tariffs and elevated uncertainty are hurting the economy. Still, a gauge of global stocks closed at a record high Wednesday amid speculation that the worst may be over after the tumult fueled by President Donald Trump’s ‘Liberation Day’ announcement two months ago.

Markets swings “have become perhaps a bit less violent since Liberation Day,” said Christina Woon, a portfolio manager at Eastspring Investments, on Bloomberg Television. A “bit of Trump fatigue” is one reason, she said.

The Institute for Supply Management’s index of services dropped a touch below the 50 level that separates expansion and contraction. Private payrolls rose the least in two years. Nonfarm payroll jobs data due Friday will provide further clarity.

On Wednesday, two- to 10-year yields reached the lowest levels since at least May 9 after the ISM Services gauge for last month signaled contraction for the first time in a year.

“Markets are likely to view this through the lens of disappointment on the real growth side,” said Florian Ielpo at Lombard Odier Investment Managers. “While this represents good news for the US economy in terms of potential rate relief, the improvement already priced into equities and credit spreads could be challenged by this series of weaker numbers.”

Traders of swap contracts that predict Fed rate changes priced in higher odds of two quarter-point cuts by year-end, in October and December. The possibility of a move in September increased to more than 90% from around 82%. Later Thursday, the European Central Bank will hand down an interest rate decision.

Meanwhile, China’s services activity expanded at a faster pace in May, a private survey showed, in a sign the consumer economy is stabilizing while higher US tariffs threaten demand for exports.

In Japan, the 30-year government bond auction saw the weakest demand since 2023, ramping up pressure on the government to adjust issuance. This came after disappointing demand at sales of 20-year and 40-year bonds late last month exposed investor concern about a lack of buyers for longer tenors.

Although a 10-year auction this week brought some relief for the Japanese market, expanding deficits are putting longer bonds under pressure worldwide.

Kevin Zhao, head of global sovereign and currency at UBS Asset Management, floated the idea that Japan should stop issuing long bonds to halt a recent selloff. 

“It’s time for the MOF to recognize this structural shift in demand for long-dated government bonds,” Zhao said in an interview. “The MOF should announce they will stop issuing any bonds over 30 years, because there’s no demand anymore.”

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 12:56 p.m. Tokyo time
• Japan’s Topix fell 1%
• Australia’s S&P/ASX 200 fell 0.2%
• Hong Kong’s Hang Seng rose 0.4%
• The Shanghai Composite was little changed
• Euro Stoxx 50 futures were little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.1412
• The Japanese yen fell 0.1% to 142.94 per dollar
• The offshore yuan fell 0.1% to 7.1804 per dollar

Cryptocurrencies

• Bitcoin rose 0.4% to $105,096.01
• Ether rose 0.8% to $2,627.76

Bonds

• The yield on 10-year Treasuries advanced one basis point to 4.36%
• Japan’s 10-year yield declined 2.5 basis points to 1.475%
• Australia’s 10-year yield declined one basis point to 4.24%

Commodities

• West Texas Intermediate crude fell 0.4% to $62.61 a barrel
• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.

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