Global bond rout knocks Australian shares 2% lower

By Kumar Tanishk

Oct 1 (Reuters) - Australian shares suffered their steepest fall since early March on Thursday, as a global bond rout fuelled by inflation concerns and elevated energy prices drove up borrowing costs and hammered risk appetite.

The S&P/ASX 200 index .AXJO slumped 2% to 8,614.40, its lowest since June 11, with every major sector in the red. Heavyweight banks and miners bore the brunt of the selloff.

Australian government bond yields jumped in tandem with US Treasuries, with the benchmark 10-year yield rising to 5.39% and the three-year yield to 4.97%.

The bond yields earlier fell for two sessions after the Reserve Bank of Australia raised the cash rate and softer -than-expected local inflation data led markets to pare bets of another hike.

Investors are reassessing the prospect of rates staying higher for longer and the resulting pressure on equity valuations, said Grady Wulff, senior market analyst at Bell Direct.

Financials .AXFJ dropped 2.1% to post their worst session in over seven weeks, with the big four banks falling between 0.9% and 3.3%.

A local housing market downturn added pressure on banks, for which mortgages are a major earnings driver, as falling prices, weaker sales and slowing housing credit growth clouded their outlook.

Wulff said banks face a more immediate threat from slowing loan growth and squeezed margins and earnings than from a sharp deterioration in credit quality.

"From here, the key thing I’d be watching is how far house prices fall and whether higher rates start to translate into materially higher arrears."

The RBA, however, played down risks to borrowers, saying house prices could fall a further 20% and still leave only 5% of borrowers in negative equity on their homes.

Property stocks .AXRE declined 2.5% to log their worst session in four and a half months.

Miners .AXMM shed 1.9% as copper prices softened. Mining majors BHP BHP.AX and Rio Tinto RIO.AX lost 0.9% and 2.4%, respectively. MET/L

New Zealand's S&P/NZX 50 index .NZ50 fell 0.2% to 13,810.51 points.