Asian shares rise to three-week high ahead of Powell's testimony

Asian shares extended their recovery on Tuesday, hitting a three-week high as US borrowing costs eased ahead of Federal Reserve Chairman Jerome Powell’s highly-anticipated first congressional testimony later in the day.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5 per cent, building on its bounce from a two-month low touched on Feb 9.

It has now recouped more than 60 per cent of its losses from a sharp global rout in early February.

Japan’s Nikkei rose 1.0 per cent to three-week highs.

On Wall Street, the S&P 500 advanced 1.18 per cent on Monday helped by fall in US bond yields.

The 10-year US Treasuries yield eased to 2.864 per cent, dropping further from its four-year peak of 2.957 per cent touched on Feb 21, driven by month-end buying as well as position adjustments ahead of Powell’s testimony.

Powell’s debut appearance is seen as critical for financial markets at a time when many investors are nervous about the Fed’s policy normalisation following years of stimulus after the financial crisis almost a decade ago.

Many investors expect the Fed to raise interest rates three times this year, with some pundits predicting four, if US inflation starts to take off, especially as growth is set to get another boost from the Trump administration’s tax cuts and spending plans.

Yet, there are worries higher dollar bond yields could prompt investors to shift funds to bonds from riskier assets, especially when the valuation of the world’s stocks are quite expensive even after their sell-off earlier this month.

The two-year US Treasuries yield xx per cent, well above dividend yield of the S&P 500, which stood at 1.88 per cent, according to a Reuters report.

A rise in dollar interest rates could also bode ill for potential borrowers, including US home buyers and many companies that have expanded borrowing for years to take advantage of low dollar funding costs.