A global bond selloff that had pushed yields to multi-decade highs began to stabilize in Asia, with oil prices easing after a two-day surge. This offered investors a respite following a challenging period for debt markets. The 10-year Treasury yield declined by one basis point to 5.19%, while the rate-sensitive two-year note yield fell by two basis points to 4.91%. Brent crude dropped by 0.7% to approximately $105.90 a barrel, after rallying more than 7% in the preceding two sessions. This relief in oil prices came amid reports that US and Iranian negotiators were exploring a phased deal to reopen the Strait of Hormuz and lift the blockade on Iranian ports.
As sentiment improved, Asian stocks saw modest gains, and US equity-index futures pared earlier losses. MSCI’s Asia Pacific equities gauge rose by 0.2%, with Japan leading the advances as markets in South Korea, Taiwan, and mainland China were closed for a holiday. However, despite the stabilization, oil prices and bond yields are expected to remain significant market drivers. Elevated energy costs continue to fuel inflation pressures, reinforcing expectations for further tightening by the Federal Reserve. Swaps markets are fully pricing in three additional quarter-point rate hikes over the next year, which has pushed long-term Treasury yields to multi-decade highs and increased pressure on equity valuations.
Timothy Moe, Chief APAC Regional Equity Strategist at Goldman Sachs Group Inc., noted that the near-term market outlook is likely to be turbulent due to US midterm elections, interest rates, higher energy prices, and geopolitical risks. However, he anticipates a clear path towards a year-end rally, driven by strong earnings and attractive valuations. Other market movements included a 2.5 basis point increase in Japan’s 10-year yield to 3.100% and a two basis point rise in Australia’s 10-year yield to 5.39%. West Texas Intermediate crude fell by 1.6% to $93.08 a barrel, while spot gold advanced by 0.5% to $4,295.22 an ounce.
