The global bond sell-off, which had pushed yields to multi-decade highs, began to stabilize in Asia as oil prices receded, providing some respite for debt markets. The 10-year Treasury yield slipped one basis point to 5.19%, after rising over 20 basis points in the preceding two sessions. The rate-sensitive two-year yield also declined by two basis points to 4.91%. Gold remained around $4,270 an ounce, while the dollar stabilized after five consecutive days of gains. Brent crude fell by 0.9% to about $105.60 a barrel, following a surge of over 7% in the previous two sessions. This stabilization was partly attributed to ongoing negotiations between the US and Iran regarding a phased deal that could reopen the Strait of Hormuz and lift the blockade on Iranian ports.
Sentiment stabilization led to a rise in stocks, with US equity-index futures paring earlier losses. MSCI's Asia Pacific equities gauge climbed 0.3%, with Japan leading gains, while markets in South Korea, Taiwan, and mainland China were closed for holidays. Despite this temporary calm, oil prices and bond yields are expected to remain key market drivers. Elevated energy costs continue to fuel inflation pressures, reinforcing expectations for further Federal Reserve tightening. Swaps fully price in three additional quarter-point hikes over the next year, a prospect that has pushed long-term Treasury yields to multi-decade highs and increased pressure on equity valuations.
Rajeev De Mello, a global macro portfolio manager at Gama Asset Management, commented that the market is likely due for a period of consolidation after such a rapid rise in bond yields. He expressed a desire to see a more sustained period of stability in yields before becoming more constructive on duration. Byron Anderson of Laffer Tengler Investments noted that higher yields are firmly established, arguing that rate hikes won't resolve issues like Iran, oil, the AI boom, or inflation, but will instead increase borrowing costs for everyone, eventually impacting labor and consumers if the Fed becomes too aggressive.
The global bond slump saw the 30-year Treasury yield reach its highest level since 2004, and the 10-year yield climbed eight basis points to 5.20% during the New York session. Two-year Treasury yields have increased over 150 basis points over the period mentioned, and 30-year yields are up more than 80 basis points. Wednesday's bond sell-off was among the largest one-day drops since Trump's April 2025 tariff rollout. Japan's 10-year yield advanced 2.5 basis points to 3.100%, and Australia's 10-year yield advanced two basis points to 5.39%. West Texas Intermediate crude fell 1.5% to $93.17 a barrel, and spot gold was largely unchanged.
Meanwhile, the sell-off in US government debt extended to Asia, with Japan's benchmark government bond yields reaching their highest level in three decades. Japan's 10-year government bond yield rose 0.1 percentage points to 3.075%, the highest since 1996, and five-year yields increased by 0.095 percentage points to 2.37%. These movements followed a significant sell-off in US Treasuries, which was spurred by strong economic data and rising oil prices, leading investors to reconsider the likelihood of further Federal Reserve rate increases. The 10-year Treasury yield jumped 0.15 percentage points to 5.11% on Wednesday and reached as high as 5.13% in Asian trading on Thursday. Eric Robertsen, head of global research and chief strategist at Standard Chartered in Singapore, described the situation as a "correlated move higher in yields" with "no escape." The OECD warned that surging bond yields are a "major concern" for countries' public finances. Data showed that American business output accelerated at its fastest pace in five years this month, and Brent crude again surpassed $100 to approximately $102 a barrel on Thursday. The market is now pricing in about a 70% chance of a Fed rate hike at its next meeting in October, up from approximately 50% at the start of Wednesday. Federal Reserve Governor Michael Barr maintained a hawkish tone, indicating more rate hikes might be necessary due to rising oil prices and inflationary pressures. U.S. plans to restrict diesel exports were also cited as contributing to higher global yields.
