Treasuries, Asian Bonds Extend Losses; Oil Gains: Markets Wrap

(Bloomberg) — Treasuries extended recent declines and Asian bonds followed as concerns over US government spending and a flood of long-dated debt weighed on sentiment, while higher oil prices stoked fears of inflation. Stocks and equity futures both fell.

US 30-year yields rose two basis points to 5.32% — a level last seen in June 2007. Bonds in Australia and New Zealand dropped, while Japan’s 10-year yields climbed to multi-decade highs amid a global selloff that’s pushing up borrowing costs.

Oil prices advanced as prospects for peace in the Middle East dimmed, reviving concerns that prolonged geopolitical tensions will threaten supplies. Global benchmark Brent rose 0.4% to $91.25 a barrel after President Donald Trump said he wasn’t interested in extending the expiring agreement with Iran and fighting flared anew in Lebanon.

“The combination of elevated oil prices, higher Treasury yields and renewed geopolitical risk is likely to keep markets volatile, with traders remaining particularly sensitive to any further updates from the Middle East,” Nick Twidale, chief market analyst at AT Global Markets, wrote in a note.

The rise in US Treasury yields reflected investor angst over surging government spending, a flood of long-dated debt sales and inflation that has remained above the Federal Reserve’s target for the past five years. Traders are stepping up their scrutiny of bond markets even after two benign US inflation readings this month prompted them to pare bets on a Fed interest-rate increase next month.

Renewed tensions in the Middle East and the recent rally in oil prices are also reviving inflation concerns as prospects for a peace deal between the US and Iran fade, raising fresh questions over the reopening of the vital Strait of Hormuz.

Yardeni Research warned that investors are showing growing signs of unease over rising government debt. Markets are becoming more concerned about the surge in borrowing by hyperscalers, while questioning whether the Fed will remain sufficiently vigilant on inflation if oil prices climb again, strategists led by Ed Yardeni wrote in a note on Tuesday.

“We aren’t pushing the panic button,” they said. “However, we are closely monitoring whether the bond vigilantes might do so.”

What Bloomberg Strategists Say…

“A distinctly negative tone is settling over Asian equities after an early rally in the Kospi evaporated. The bigger concern for stocks is that widening crude-product spreads in the oil markets are keeping inflation pressures elevated and pushing long-term bond yields higher.”

— Mark Cranfield, MLIV Strategist. For full analysis, click here.

Elsewhere, Asian stocks erased earlier gains with MSCI’s regional gauge falling 1%. The Kospi Index in South Korea gave up an advance of 3.4% to decline 2%. The Nikkei 225 Stock Average in Japan slipped 2.3%.

As sentiment worsened, futures contracts for the Nasdaq 100 index declined 0.7%. European shares were also set for a weaker start.

“AI euphoria from earlier has now evolved into greater circumspection about stretched valuations amid more challenging liquidity conditions,” said Vishnu Varathan, head of macro strategy for Asia Pacific at Mizuho Securities in Singapore. “At the very least, re-pricing is now on the menu.”

A Bloomberg gauge of the dollar edged up after dropping to the lowest level since May on Monday. Gold fell 0.5% to about $4,395 an ounce.

That said, attention remained firmly on the bond market.

French borrowing costs hit the loftiest since 2008, and their German peers traded at 2011 levels. In the UK, equivalent gilt yields are approaching 6%, while similar-maturity Japanese ones are close to their all-time high.

The yield on the US Treasury 10-year note climbed one basis point to 4.73% after rising three basis points Monday.

“US Treasuries continue to trade with a heavy tone — likely more to come,” Padhraic Garvey, regional head of research, Americas at ING Groep NV, wrote in a note. “It’s a slow grind, but the net direction remains up in yield, and in particular in long yields.”

Corporate Highlights:

BHP Group’s profit rose by almost a third as buoyant commodity prices lifted earnings, with full-year revenue from copper overtaking iron ore for the first time. Nvidia Corp. has agreed to spend as much as $105 billion to support a massive new data center campus in Ohio set to be leased by OpenAI. Berkshire Hathaway Inc. increased its holdings in Delta Air Lines Inc. and Google parent Alphabet Inc. as Greg Abel began tapping into the company’s massive cash hoard.

Some of the main moves in markets:

Stocks

S&P 500 futures fell 0.4% as of 6:53 a.m. London time Nasdaq 100 futures fell 0.7% The MSCI Asia Pacific Index fell 0.9% The MSCI Emerging Markets Index fell 0.8% Japan’s Topix fell 0.9% Australia’s S&P/ASX 200 rose 0.2% Hong Kong’s Hang Seng was little changed The Shanghai Composite was little changed Euro Stoxx 50 futures fell 0.5% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1573 The Japanese yen fell 0.1% to 159.66 per dollar The offshore yuan was little changed at 6.7462 per dollar The British pound was little changed at $1.3538 Cryptocurrencies

Bitcoin fell 0.3% to $64,167.67 Ether fell 0.6% to $1,894.44 Bonds

The yield on 10-year Treasuries advanced two basis points to 4.74% Japan’s 10-year yield advanced 1.5 basis points to 2.935% Australia’s 10-year yield advanced five basis points to 5.09% Commodities

Spot gold fell 0.4% to $4,396.31 an ounce West Texas Intermediate crude rose 0.7% to $85.07 a barrel This story was produced with the assistance of Bloomberg Automation.

–With assistance from Ruth Carson and Winnie Hsu.

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