Treasuries, Asian Bonds Drop After Oil Advances: Markets Wrap

(Bloomberg) — Treasuries extended their declines and Asian bonds followed as renewed geopolitical tensions drove oil prices higher, fueling inflation concerns and expectations for further monetary tightening.

The yield on the benchmark 10-year Treasury rose three basis points to 4.78% in Asian trading, the highest since January 2025. Japan’s 10-year government bond yield climbed to 2.985%, hovering around a three-decade high, while its Australian counterpart rose to the highest level since 2011.

Brent crude rose 0.7% to over $91 a barrel after renewed fighting in the Middle East. The US and Iran exchanged strikes for the first time in about a month as American forces hit an island in the Strait of Hormuz and the Islamic Republic responded by launching attacks on the United Arab Emirates and Jordan.

Elsewhere, MSCI’s Asia Pacific equities gauge edged 0.3% higher, led by Taiwanese shares. MediaTek Inc. shares jumped 9.9% in Taipei trading after Nvidia Corp. said it’s investing $3.5 billion in the chipmaker. In Hong Kong, Shein Global Holdings Ltd. had a flat start to its trading in Hong Kong after raising HK$13.6 billion ($1.7 billion) in an initial public offering.

The flare-up in Middle East tensions has dimmed prospects for a normalization of shipping through Hormuz, keeping oil prices elevated and adding to inflation concerns. Money markets have increased bets on a September interest-rate hike after Federal Reserve Chair Kevin Warsh’s tough message on inflation at Jackson Hole last week, putting increased focus on this week’s employment report.

“A rapid rise in energy prices could reignite inflation concerns,” wrote Dilin Wu, a strategist at Pepperstone Group Ltd. “Rising policy uncertainty could trigger a sharp increase in cross-asset volatility.”

In other corners of the market, gold held its losses from the past two days, trading around $4,440 an ounce. Rising rates are a headwind for the non-yielding metal, which still gained about 9.7% in August.

Traders are also closely monitoring the yen as the Japanese currency traded near 160 versus the dollar, raising the risk that authorities may enter the market again to slow its decline.

While the currency strengthened slightly on Tuesday, the yen has still unwound more than half the gains it made during a record bout of intervention that began in late July.

Separately, US Treasury Secretary Scott Bessent told Japanese Finance Minister Satsuki Katayama and Bank of Japan Governor Kazuo Ueda that further interest-rate hikes were needed, NHK reported, citing an interview with a US official.

Bonds remained in focus. Not since 2006 have yields on the longest-maturity Treasuries been this high for this long, with a gaping budget deficit, another wave of corporate issuance and a potentially decisive Fed meeting expected to keep investors wary in coming weeks.

The yield on the 30-year bond hit 5.34% in mid-August, its most elevated since 2007 and just 10 basis points away from the highest level in 22 years. As of Monday, the yield has settled above 5% on 55 days since the start of January, the most closes above that mark in any year since 2006, data compiled by Bloomberg show. The yield was at 5.27% on Tuesday.

The bond moves increase focus on the August US payrolls data. Friday’s jobs report “will be critical,” though the Sept. 11 consumer-price data will be even more important given Warsh’s view that the US economy is at full employment, said JPMorgan Chase & Co.’s Andrew Tyler.

“With traders tracking geopolitical volatility as well as potential seasonal volatility, it will be interesting to see which market impulse from last week might carry over to this week,” said Chris Larkin at E*Trade from Morgan Stanley. “Unexpectedly strong labor-market data might be taken as bad news by the market, since it could reinforce expectations for a rate hike.”

Some of the main moves in markets:

Stocks

S&P 500 futures were little changed as of 10:40 a.m. Tokyo time Japan’s Topix rose 0.5% Australia’s S&P/ASX 200 fell 0.5% Hong Kong’s Hang Seng fell 0.7% The Shanghai Composite was little changed Euro Stoxx 50 futures fell 0.2% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1610 The Japanese yen was little changed at 159.80 per dollar The offshore yuan was little changed at 6.7203 per dollar The Australian dollar was little changed at $0.7171 Cryptocurrencies

Bitcoin fell 0.4% to $78,521.31 Ether fell 0.3% to $2,466 Bonds

The yield on 10-year Treasuries advanced three basis points to 4.78% Japan’s 10-year yield advanced 4.5 basis points to 2.985% Australia’s 10-year yield advanced nine basis points to 5.18% Commodities

West Texas Intermediate crude rose 0.9% to $86.55 a barrel Spot gold rose 0.1% to $4,443.71 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Rob Verdonck.

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