Asian bond yields kept rising Friday even as oil pulled back, signalling continued caution about inflation and higher interest rates as the Middle East conflict drags on.

The selloff in U.S. government bonds again spilled over into Asian debt markets as Treasury yields hit highs not seen since 2007.

The bond rout has renewed fears that tighter financial conditions could ultimately slow economic activity, said analysts at BMI, a unit of Fitch Solutions

While higher rates don't automatically translate into a credit crunch, BMI said sustained increases in funding costs can lead banks to become more selective in extending credit to households and firms, squeezing the spending and investment that accounts for a substantial chunk of developed economies' gross domestic product.

Japanese government bond yields were trading at multidecade highs early Friday, with the latest 10-year yield gaining 3.5 basis points to 3.110%--the highest since August 1996.

The 10-year Australian sovereign securities yield rose 3.4 basis points to 5.403%, while New Zealand's 10-year yield was up 3.3 basis points at 5.104%

The resurgence of energy prices due to re-escalation in the Middle East has been a key factor in the global yield surge, fueling expectation of more aggressive central bank tightening.

But oil started lower Friday morning as traders weighed reports of a potential proposal to reopen the Strait of Hormuz--a key energy-shipping route blocked off by the fighting.

Front-month West Texas Intermediate futures shed 1.7% to $93.02 a barrel, while front-month Brent dropped 0.8% to $105.70 a barrel, ICE data showed.

However, given the history of failed negotiations between Washington and Tehran, market participants remain cautious, OCBC strategists said.

"We've been here before and significant hurdles remain, with neither side willing to give up its leverage easily," they said.

Regional equities were mixed, with many markets closed for holidays.

Hong Kong's Hang Seng Index was 1.6% lower, Australia's S&P/ASX 200 was down 0.6% and Japan's Nikkei Stock Average was 0.8% higher. South Korea, Taiwan and China were closed.

Gold and silver remained under pressure as higher yields dim the appeal of non-yielding assets. Spot gold was 0.1% higher but still below $4,300 a troy ounce, while silver was flat at $63.91.

Asian currencies continued to feel the sting of a stronger dollar and higher rates. The yen remained around 158 to the dollar, keeping intervention chatter in play, while the baht and rupiah continued to underperform.

"The external backdrop remains difficult for Asia FX," said MUFG's Lloyd Chan.

Bitcoin was muted as well, trapped below $85,000 as yields and rate expectations curb the cryptocurrency's attempt to rally.

The high-profile summit between Chinese leader Xi Jinping and President Donald Trump did little to lift the market mood, yielding no meaningful outcomes, as had been widely expected.

The two sides agreed a modest two-month extension to the existing trade detente, but that still leaves "issues over tariffs, agricultural purchases, rare earths, and technology restrictions unresolved," said Chan.

The next meaningful test will come at the APEC Summit in Shenzhen, said Carlos Casanova at UBP, which offers another opportunity to convert diplomatic engagement into concrete agreements.