It's shaping up to be yet another rough day for most ASX shares so far this Monday. At present, the S&P/ASX 200 Index (ASX: XJO) has dropped by 0.22% today, leaving the index at just over 7,650 points. But let's talk about what's going on with ASX property shares.
Property shares and ASX real estate investment trusts (REITs) are, on the whole, having an even worse day than the broader market. Just take what's happened to the S&P/ASX 200 A-REIT Index (ASX: XPJ) so far today. This index is currently the worst-performing sector on the entire market, down a hefty 1.61% so far.
Some ASX property shares are faring even worse than their index. Goodman Group (ASX: GMG) units, for instance, are presently nursing a 2.74% loss down to $30.01.
Charter Hall Group (ASX: CHC) has lost 1.86% to $13.20, while HomeCo Daily Needs REIT (ASX: HDN) units have tanked 2.9% down to $1.28.
Scentre Group (ASX: SCG) has retreated by 1.35% down to $3.30 a unit, while Stockland Corporation Ltd (ASX: SGP) is faring better than most with a loss of 0.62% to $4.82.
So why are ASX property shares having such a dire start to the week? It's likely that rising bond yields are at least playing some role here.
Last week, we covered the latest American inflation numbers, which didn't exactly delight anyone. US wholesale inflation over the month of February ran at a hot 0.6%, which was double what most economists were expecting to see.
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Has American inflation just tanked ASX property shares?
This has resulted in some significant losses on the US markets in recent days and was arguably at least partially responsible for the ASX rout we saw on Friday.
Investors have been spending most of 2024 hoping that inflation will continue to cool, leading to lower interest rates sooner rather than later. Those hot inflation figures poured cold water on this notion.
US government bond yields have been rising ever since this inflation data was released. According to CNBC, a week ago the US Five-Year Treasury note was trading on a yield of 4.08%. Today, that yield is sitting at 4.33% – a massive increase over just one week.
This indicates that investors are sharply revising their expectations of interest rate cuts in the immediate future. And that's bad news for most ASX shares, but particularly ASX property shares.
Property shares and REITs tend to use relatively high levels of borrowing and gearing, thanks to their ownership of real estate. As such, these investments are more sensitive to interest rate moves than other ASX shares. If a property share like Goodman Group or Scentre has a large debt facility, its interest costs would also be high.
If investors are expecting central banks to lower interest rates in the immediate future, this might not bother investors too much. But if, as seems to be the case this week, investors pivot to expecting higher rates for longer, it arguably makes ASX property shares immediately less desirable by extension.
This could be what is giving this ASX sector a whack today.
