Asian Equities Fall, Bond Yields Climb as Oil Rises

Dow Jones
09/24
 
 

Asian equities weakened while bond yields marched higher as inflation concerns remain front of mind for investors, fueling expectations of interest-rate hikes.

The selloff in U.S. government debt overnight spilled over into Asian bond markets Thursday, with the 10-year Japanese government bond yield rising above 3% to reach its highest since August 1996.

That followed unexpectedly strong economic data from the U.S. and Europe that sharpened the case for more central bank tightening as the drawn-out Iran war keeps energy prices high.

"The combination of stronger U.S. growth, rising inflation risks and higher oil prices have created a toxic combination for bonds, driving yields sharply higher across the curve," said Lloyd Chan, senior currency analyst at MUFG.

Continued economic growth and elevated price pressures are a perfect combination for tighter financial conditions, Swissquote's Ipek Ozkardeskaya said, noting that the U.S. 2-year yield--which best captures Federal Reserve rate expectations--spiked past 4.94% to the highest since June 2024.

Debt markets in Australia and New Zealand felt the chill too. The yield on 10-year Australian sovereign securities jumped 10 basis points to 5.35%, while that on 10-year New Zealand government debt climbed 15 basis points to 5.07%.

Equities took their cue from the bond jitters, with most major indexes turning lower across Asia.

Australia's S&P/ASX 200 finished 0.7% lower, Taiwan's Taiex ended down 0.3%, Hong Kong's Hang Seng Index declined 0.3% and China's Shanghai Composite Index shed 0.9%. South Korean markets were closed for a holiday.

Japan's Nikkei Stock Average was a standout, rising 0.8%, though that was mostly due to catch-up trade following a three-day holiday.

Oil futures edged higher in afternoon trading, reversing earlier losses.

Iranian President Masoud Pezeshkian said Wednesday that Iran is ready for negotiations to end the conflict with the U.S. but warned that Tehran will never surrender to what he called Washington's bullying, or give up its nuclear program--a key demand from the U.S. side.

Front-month West Texas Intermediate crude oil futures were up 0.5% at $92.60 a barrel, and front-month Brent gained 0.55% to $103.65 a barrel, ICE data showed.

Gold was treading water in the $4,285-a-troy-ounce area amid renewed pressure from bond yields, while Bitcoin was well below the $85,000 line seen as a key momentum indicator.

Market focus is on any concrete sign of progress in resolving U.S.-Iran conflict that would bring energy prices down sustainably and ease inflation fears.

While it's possible to get through the coming months without another significant move higher in long-end yields, the balance of probabilities suggests that at least one more leg of long-end weakness could still play out as markets stay laser focused on deteriorating debt dynamics and medium-term financing concerns, particularly in the U.S., said ING's Padhraic Garvey and Michiel Tukker.

"In an extreme scenario, this could take U.S. 10-year yields into the 5.25% to 5.5% range," they added.

 
 

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