Asian bonds and Treasury futures saw a rally as oil prices continued their decline, driven by signals of diplomatic progress between the US and Iran aimed at ending the war. This easing of geopolitical tensions and the associated drop in oil prices helped alleviate inflation concerns, which in turn supported bond markets. Government bonds in Australia and New Zealand rallied, with 10-year yields in both countries falling by at least three basis points. Australia's 10-year yield specifically declined six basis points to 5.24% in one report, and five basis points to 5.25% in another. The US 10-year Treasury yield hovered around 4.93% after crude prices moved lower, contributing to what analysts described as a "macro release valve" for inflation anxiety.
Oil prices were poised for their longest losing streak in a year, with Brent crude dropping 1.2% to about $98 a barrel and 0.5% to about $98.80 a barrel in separate reports, heading for a sixth consecutive losing session. West Texas Intermediate (WTI) crude also fell, with figures of 1.9% to $88.79 a barrel and 0.9% to $89.72 a barrel reported. This sustained decline in oil is crucial for bond markets, as it reduces the inflation premium embedded in long-end yields and helps stabilize markets after recent post-Fed volatility. The focus remains on whether this is a durable repricing of geopolitical risk or a tactical pullback.
Equity markets also benefited from the improved sentiment. MSCI’s Asia Pacific stocks index edged up 0.1%, with chipmakers driving gains. Nasdaq 100 hit its first record since June, fueled by strong performance in US chipmakers and excitement around AI, particularly Meta Platforms Inc.'s new Muse AI agent and its partnership with Shopify Inc. South Korean stocks gained 1.2%, with Samsung and SK Hynix both up over 2%, and Taiwan firmed 0.9%. However, some early advances in Asian stocks, especially in Hong Kong technology shares, lost ground later in the day, with Alibaba Group Holding Ltd. sliding more than 4%. European shares were set to open 0.4% higher, and Wall Street benchmarks indicated modest gains.
