Moderately positive risk sentiment returned to Asian equity markets on Tuesday, as immediate concerns about the strength of the global financial system dissipated.
An index measuring the performance of stocks in the region rose by 0.5%, as stocks rose in Hong Kong, South Korea and Australia. Most sectors rose, with gains in financial stocks outpacing broader indices.
S&P 500 futures rose slightly after a 0.9% jump Monday for the benchmark. News that US officials are studying ways to temporarily guarantee all bank deposits in case the current banking crisis widens, contributed to the S&P 500 and Nasdaq 100 contracts reaching their highest levels during the day.
Sentiment was also supported during the Asian session by the recovery of additional Tier 1 bonds sold by banks in the Asia Pacific region.
The dollar settled slightly higher, ending a three-day losing streak that took its strength index to a one-month low in Monday's trading. The dollar's performance coincides with growing expectations that the Federal Reserve may adjust to a more cautious policy approach when it decides on interest rates on Wednesday.
Government bond yields fell in Australia and New Zealand after a global trading day on Monday.
Board meeting minutes showed that the Australian central bank may consider a pause in interest rate hikes next month, weighing on government bond yields and the Australian dollar.
The two-year US Treasury yield, which is sensitive to monetary policy, rose 14 basis points on Monday, at just under 4%. There was no monetary Treasury trading in Asia on Tuesday with a holiday in Japan.
Investors are watching the Fed meeting closely and have increased bets for a rate hike by just a quarter of a percentage point, as recent financial turmoil spurred speculation of a slower pace of tightening from major central banks around the world.
Just two weeks ago, investors were betting that the US Federal Reserve would raise interest rates to nearly 6% and the European Central Bank to 4%. But now the markets are indicating that the tightening cycles are almost over and are betting on multiple rate cuts in the US by the end of the year.
Swap traders currently see the Fed ending the year at around 4%, which is a full percentage point below the Fed's rate estimate in the December dot chart that comes as part of the Quarterly Economic Outlook.
Elsewhere in the markets, Oil fell after a turbulent session yesterday although a calmer tone returned to the market. While gold prices rose.