Asian bonds fell, mirroring losses on Wall Street, as increasing oil prices and robust US economic data fueled inflation worries and boosted expectations for additional interest-rate hikes. The yen, currently near a three-week low, is a key focus as Japanese markets resume trading. Government bonds in Australia and New Zealand also dropped, following similar declines in Treasuries during the New York session. The sell-off intensified after a weak $70 billion sale of five-year notes pushed the yield above 5% for the first time since 2007. On Wednesday, 10-year Treasury yields surged 15 basis points to 5.11%, marking the largest one-day increase since the market turmoil in April 2025 following President Donald Trump’s tariff announcement.
US oil showed little change in early trading after Brent crude jumped 3.9% to settle at $103.08 a barrel. The dollar strengthened against all major currencies, while gold dropped 1.7% to approximately $4,287 an ounce, as higher interest rates reduced the appeal of the non-yielding metal. US stock futures stabilized in early Asian trading after the S&P 500 declined 0.8% and the Nasdaq 100 fell 0.9% on Wednesday. Chinese stocks are also in focus after the US and China extended their trade truce by two months as President Xi Jinping arrived in America for his first state visit in 11 years.
The combination of higher energy costs and a resilient US economy is expected to maintain pressure on bonds and equities, as investors re-evaluate the extent to which the Federal Reserve might need to tighten its policy. Traders have increased their bets on further rate hikes, especially after the US central bank raised rates last week for the first time since 2023. According to Tony Miano of Wells Fargo Investment Institute, "This is the market telling us we’ve entered a genuine re-tightening cycle." He added that "The entire curve is repricing at once, which means higher discount rates for equities, higher mortgage and corporate borrowing costs, and a higher bar for risk assets." Swaps now fully reflect three quarter-point hikes over the next year, with significant hedging for a fourth, potentially bringing the central bank’s target rate to a range of 4.75% to 5%.
Sean Simko, head of fixed-income investment management at SEI Investments, cautioned against opposing the current market trend, stating, "You don’t want to step in front of the freight train today." He highlighted a "trifecta" of factors: stronger economic data, supply pressures pushing the five-year yield to levels not seen in years, and the perception of persistent global inflation. Australia's 10-year yield advanced 14 basis points to 5.39%.
