The turbulence from Thursday's sharp selloff in long-dated US Treasuries cascaded across global markets on Friday, with escalating Middle East tensions driving oil prices higher and fueling speculation that the Federal Reserve may need to resume rate hikes to contain inflation. The yield on the 30-year US Treasury bond climbed 0.01 percentage point to 5.38%, reaching its highest level in nearly two decades, while the 10-year yield touched 4.97% during the session.

Brent crude traded just below $106 per barrel, retreating nearly $2 from earlier highs, while US crude held above the $101 mark. Oil prices surged significantly following the Houthi takeover of Yemen's Mocha port, with the group advancing toward the Bab el-Mandeb Strait—a critical maritime artery connecting the Red Sea to the Suez Canal and vital to global energy trade. Tai Hui, Chief Market Strategist for Asia Pacific at JPMorgan Asset Management, warned: "If Iran gains control over the southern Red Sea outlet, it would put additional strain on global energy markets and raise the costs of this conflict for the entire world."

Ian Samson, a portfolio manager at Fidelity, commented: "In the short term, all market movements are being driven by oil prices. Given the current situation, combined with the possibility of further restrictions on petroleum shipments, there is no doubt that oil prices face continued upside risk." The Friday volatility followed Thursday's substantial rout in long-dated US government debt, with Asian markets feeling the ripple effects—Japan's 10-year government bond yield rose 0.07 percentage point to 2.98%, the 30-year yield touched 4.05%, while China's 10-year yield held steady at 1.68%.

Treasury Secretary Scott Bessent's long-dated bond repurchase operation came in below expectations, as the $6 billion buyback target was not fully met, further aggravating investor unease. Vincent Chung, a fixed income portfolio manager at T. Rowe Price, noted: "The market is somewhat disappointed by this. Once you set expectations these days, you essentially must exceed them, otherwise you get penalized by the market."

The elevated oil prices are weighing heavily on Asian economies that depend heavily on energy imports, with regional equity markets broadly declining. S&P 500 futures edged up 0.1%, while Euro Stoxx 600 futures saw a comparable decline. Futures market pricing now indicates the probability of a Fed rate hike has climbed to approximately 70%, up from 60% earlier on Thursday. Andrew Pease, Head of Asia Pacific Investment at Russell Investments, observed: "Market expectations for where the Fed will ultimately end its tightening cycle have surged dramatically. The market is now betting against the Fed, believing the central bank is not paying enough attention to inflation."

Investors point to Friday's US inflation data release as the critical determinant for whether the Fed will need to hike rates to curb price pressures. Richard Yetsenga, Head of Research at ANZ Bank, stated: "I believe the Fed has now entered a rate hiking phase. The Fed has missed its inflation target for five consecutive years. Unfortunately, the Middle East conflict appears to be at a standstill, and oil prices remain elevated as a result."

Analysts suggest that Fed Chair Kevin Warsh's announcement to abandon forward guidance has further unsettled markets. JPMorgan's Hui noted: "Should the Fed reduce its forward guidance, it would make investors even more anxious about the bond market." Amid the prevailing uncertainty, the selloff in US Treasuries is eroding their appeal as a safe-haven asset. Fidelity's Samson remarked: "It's becoming unclear who will step in as the natural buyer of bonds right now, because bonds are actually increasing portfolio risk rather than serving to diversify it."