(Bloomberg) -- Asian bonds are tumbling Thursday after Federal Reserve Chairman Jerome Powell's latest hawkish pivot, with Australian and New Zealand benchmark yields spiking to fresh highs and signaling a rough day for markets across the region.
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Australia's 10-year yield jumped 11 basis points to 2.06%, a level last seen in October when the country's bond market melted down. New Zealand's 10-year notes slumped to send the yield to 2.70%, the highest since November 2018. Similar-dated Treasuries traded 10 basis points higher at 1.87%.
The Australian and New Zealand dollars each dropped more than 0.5% as investors anticipated a steeper pace of U.S. tightening after Powell said the Fed is ready to raise interest rates in March and didn't rule out moving at every meeting to wrestle inflation back down.
"We look to be in for a potentially faster and larger hike cycle than was previously thought," said Damien McColough, head of fixed-income research at Westpac Banking Corp. in Sydney. "Powell made no mention of 'gradual' or any other disclaimer. Yields will push higher today and over coming days, with the curve bear flattening."
Read More: Powell Backs March Liftoff, Won't Rule Out Hike Every Meeting
The Fed's aggressive stance is expected to push other central banks across the globe to accelerate their efforts to wind back the unprecedented monetary stimulus they deployed to combat the impact of the Covid-19 pandemic. Swaps futures show traders are forecasting the Reserve Bank of New Zealand will raise rates by a percentage point within six months.
Data early Thursday showing New Zealand inflation accelerated to the fastest pace in more than 31 years in the fourth quarter will reinforce bets that the central bank will keep raising interest rates.
The selloff in Australian bonds comes as some investors expect the nation's central bank to scrap quantitative easing next Tuesday. Such a move would likely set off fresh speculation that the Reserve Bank of Australia will be forced to abandon its insistence on holding the cash rate target at a record low until 2023 or later.
(Adds moves in Australian yields, N.Z. inflation data)
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