A global bond selloff, which had pushed yields to multi-decade highs, began to stabilize in Asia as oil prices retreated after a two-day surge. The 10-year Treasury yield slipped one basis point to 5.19%, while the rate-sensitive two-year yield declined two basis points to 4.91%. Gold held steady around $4,270 an ounce, and the dollar stabilized after five consecutive gains. Brent crude fell 0.9% to about $105.60 a barrel, following a surge of more than 7% over the previous two sessions. This stabilization was partially attributed to news that US and Iranian negotiators were exploring a phased deal that could see Tehran reopen the Strait of Hormuz.
As market sentiment stabilized, stocks rose, and US equity-index futures pared 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 a holiday. Contracts also indicated potential gains for Europe. Despite the temporary respite, oil prices and bond yields are expected to remain key market drivers. Elevated energy costs are seen as contributing to inflation pressures and reinforcing expectations for further Federal Reserve tightening. Swaps fully price three additional quarter-point hikes over the next year, a prospect that has driven long-term Treasury yields to multi-decade highs and increased pressure on equity valuations.
Analysts anticipate a period of consolidation after the rapid rise in bond yields. Rajeev De Mello, a global macro portfolio manager at Gama Asset Management, stated that he would want to see a more sustained period of stability in yields before becoming more constructive on duration. Timothy Moe, chief APAC regional equity strategist at Goldman Sachs Group Inc., warned of a bumpy period in the near term due to politics, interest rates, higher energy prices, and geopolitical risks, particularly in the run-up to the US midterm elections. However, he foresees a clear roadmap towards a rally at the end of the year, propelled by earnings and attractive valuations.
