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Japan’s Nikkei 225 sheds nearly 4% as Asia-Pacific stocks sell off

SINGAPORE — Stocks in Asia-Pacific fell sharply in Friday trade following an overnight drop on Wall Street as a rapid rise in bond yields rattled investor sentiment.

In Japan, the Nikkei 225 led losses among the region’s major markets as it fell 3.99% to close at 28,966.01 while the Topix index slipped 3.21% to finish its trading day at 1,864.49. South Korea’s Kospi dropped 3.06%.

Hong Kong’s Hang Seng index plunged 2.89% in afternoon trade. Mainland Chinese stocks also fell: The Shanghai composite was down 1.62% while the Shenzhen component slipped 1.662%.

Australia’s S&P/ASX 200 also saw sizable losses as it fell 2.35% to close at 6,673.30.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 2.99%.

Bond yields rise

Investors monitored bond yields during Friday’s session. Overnight, the yield on the benchmark 10-year U.S. Treasury note briefly crossed the 1.6% level to trade at its highest level in more than a year.

“Yields are rising because investors are optimistic. They believe a strong sustainable recovery is right around the corner and prices will rise as demand comes roaring back.,” Kathy Lien, managing director of foreign exchange strategy at BK Asset Management, wrote in a note dated Thursday.

Investor optimism about the economic outlook has risen recently on the back of factors such as positive vaccine developments as multiple major economies inoculate their populations.

Destination Wealth Management Founder and CEO Michael Yoshikami said he’s “not terribly surprised” to see the 10-year Treasury yield reach the 1.5% to 1.6% level.

“I think if you start getting above two, two-and-a-quarter, okay then we start to get concerned. But frankly, I just don’t see the inflationary pressure in the economy right now even with the stimulus package coming,” Yoshikami told CNBC’s “Squawk Box Asia” on Friday.

U.S. bond yields eased in the afternoon of Asia trading hours on Friday. The yield on the 10-year was last at 1.4805%, while the yield on the 30-year Treasury bond sat at 2.2644%. Yields move inversely to prices.

In Asia-Pacific, the yield on the Australian 10-year bond rose to 1.9% while that of the 10-year Japanese government bond also advanced to 0.165%. Earlier, the yield on the 10-year JGB had risen as high as 0.181% — a level not seen since early 2016, according to FactSet.

Tech stocks drop

Investors also kept an eye on technology stocks in Asia-Pacific, which fell in Friday trade.

Hong Kong-listed shares of Chinese tech firms plummeted in afternoon trade: Tencent slipped 3.18%, Xiaomi fell 4.66%, Alibaba dropped 4.27% and Meituan declined 5.83%. The broader Hang Seng Tech index in the city also fell about 5%.

Japanese conglomerate SoftBank Group saw its shares plunge 4.53%. In South Korea, shares of industry heavyweight Samsung Electronics fell 3.52%.

Those losses came after the tech-heavy Nasdaq Composite dropped 3.52% overnight on Wall Street to close at 13,119.43 — its biggest sell-off since Oct. 28.

The Dow Jones Industrial Average also fell 559.85 points to finish its trading day at 31,402.01 while the S&P 500 declined 2.45% to close at 3,829.34.

Currencies and oil

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 90.389 following an earlier high of 90.412.

The Japanese yen traded at 106.18 per dollar, having weakened from levels below 105.6 against the greenback seen earlier this week. The Australian dollar changed hands at $0.7834, off levels above $0.792 seen earlier in the week.

Oil prices were lower in the afternoon of Asia trading hours, with international benchmark Brent crude futures down 1.14% to $66.12 per barrel. U.S. crude futures fell 1.21% to $62.76 per barrel.

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