Jan 19 (Reuters) - Asia's emerging stock and currency markets largely fell on Wednesday as U.S. Treasury yields perched at two-year highs amid prospects of higher U.S. interest rates.
Currencies in the region were flat to lower with Indonesia's rupiah , an attractive carry-trade for investors, down a fifth of a percent, while the Thai baht fell 0.3%.
The U.S. dollar also firmed overnight as two-year Treasury yields stayed above 1% and benchmark 10-year yields stood at a two-year high of 1.8860%.
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Investors are now awaiting the Federal Reserve's Jan. 25-26 meeting for hawkish signals as markets now position for at least four hikes this year, likely starting in March.
Higher U.S. interest rates could prompt outflows from Asia's riskier assets and the central banks to also tighten.
Malaysia led Asia's emerging stock markets lower with a 0.9% drop, coming off a holiday on Tuesday.
In China, stocks (.SSEC) fell 0.4%, while the yuan was flat. The central bank on Tuesday flagged more policy easing on the cards to help prop up the slowing economy, leading to government bond yields falling across the curve. read more
Three-year and benchmark 10-year yields fell to June 2020 lows.
"The general hardiness of the Chinese currency is itself becoming a major attraction given its ample liquidity and still-decent carry," Alvin Tan, RBC Capital Market's head of Asia FX strategy said, referring to a currency roughly flat so far this year.
Prices of oil, another big inflation driver, climbed to a seven-year high.
On Thursday, the central banks of Malaysia and Indonesia conclude their policy meetings and although no changes are expected, markets will be keen on what commentary is forthcoming as global monetary policy looks set to tighten.
A Reuters poll showed economists think Bank Indonesia will wait till the second half of the year to hike rates. read more
The surge in real rates spreads with U.S. real rates suggests Asian emerging market central banks have time to maintain their accommodative stances, though "the Fed's hiking course will erode reals spread very quickly", Mizuho said in a note.
HIGHLIGHTS:
** Indonesian 10-year benchmark yields are up 1.5 basis points at 6.411%
** CIMB Group Holdings Bhd (CIMB.KL) and Top Glove Corp Bhd are among the top losers in Malaysia
** Battery maker LG Energy Solution's public subscription for retail investors ends on Wednesday, with investors placing bids worth more than 32 trillion won solely on Tuesday read more
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Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Himani Sarkar
Our Standards: The Thomson Reuters Trust Principles.
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