Bond Yields Surge, Oil Prices Retreat as Markets React to Trade and Peace Talks
Market Reactions to Global Economic and Geopolitical Events
By Rocky Swift
Bond Markets and Yield Movements
TOKYO, Sept 24 (Reuters) - Debt markets were on edge on Thursday, as Japanese bonds followed Treasuries lower, while Asian equities were mixed as investors weighed simmering Middle East tensions and prospects for talks between the United States and China.
As Tokyo markets reopened after a three-day holiday, the benchmark 10-year Japanese government bond yield jumped to a 30-year high after a steep sell-off in the U.S. market overnight. Oil prices eased from recent highs and the greenback held gains after Tehran's leader vowed to never surrender following a warning by U.S. President Donald Trump that he could "annihilate" Iran.
Central Bank Actions and Economic Indicators
Market participants looked ahead to a series of central bank speeches and economic releases, including U.S. jobless claims, for signals on future interest rate hikes. A summit between Trump and Chinese President Xi Jinping was also in focus, with hopes for progress on trade relations.
"Equities are really showing some signs of creaking under the weight of ever-rising bond yields," Ray Attrill, head of FX strategy at the National Australia Bank, said on a podcast. "And in that sort of risk-off environment, it still seems to be the case that the U.S. dollar does find safe-haven support."
Equity and Commodity Market Performance
The MSCI Asia ex-Japan index fell 0.64%, while Japan’s Nikkei 225 rose 1.73%. Australian shares hit a more than three-month low, with the benchmark S&P/ASX 200 index falling 1.2%.
Trade Talks and Diplomatic Developments
Xi's first trip to the U.S. in nearly three years was not expected to deliver major breakthroughs, but Washington and Beijing could extend their 11-month trade truce. Treasury Secretary Scott Bessent said they had reached a deal on an extension as Trump greeted Xi personally at Joint Base Andrews in Maryland.
Bond Yield Highs and Inflation Concerns
Bond yields have climbed to multi-year highs as traders price in the likelihood of central bank hikes to contend with persistent inflation.
Japan's 10-year government bond yield climbed 8 basis points (bps) to 3.06%, a level not seen since August 1996, and the 30-year yield rose 5.5 bps to 4.12%. The U.S. 10-year Treasury yield held steady at 5.11%, after reaching the highest since 2007 overnight.
Central Bank Commentary and Inflationary Pressures
Central bank officials maintained a hawkish tone as rising oil prices drove inflationary pressures. Federal Reserve Governor Michael Barr said on Wednesday the central bank's recent rate hike was part of efforts to recalibrate borrowing costs and signalled more increases may be needed. Markets are anticipating speeches from other Fed officials on Thursday, including New York Fed President John Williams and Fed President Beth Hammack.
Geopolitical Tensions and Commodity Prices
Geopolitical tensions kept energy prices elevated. Iranian officials communicated with U.S. envoys at the UN General Assembly, but both sides signalled little progress toward ending the conflict. Trump reiterated threats of further escalation, while Iran's president vowed not to yield.
Brent crude fell 1% to $102.05 a barrel, while U.S. West Texas Intermediate slipped 0.74% to $91.48 a barrel. Spot gold gained 0.35% to $4,301.89 an ounce.
Currency and Cryptocurrency Movements
The dollar index fell 0.04% to 101.09, while the euro slipped 0.02% to $1.14. The Japanese yen strengthened 0.24% to 157.91 per dollar.
U.S. Economic Data and European Market Futures
On the economic front, the U.S. Labor Department is expected to report that initial jobless claims likely rose to 201,000 in the week ended September 19, while continuing claims likely increased 15,000 to 1.745 million in the prior week. New home sales are forecast to edge up to 615,000 units in August from 607,000 units in July.
European futures were lower. Euro Stoxx 50 futures fell 0.33% to 6,304.00, DAX futures slipped 0.33% to 25,525.00, FTSE futures dropped 0.35% to 10,739.50.
Bitcoin edged up 0.07% to $84,288.53, while Ether climbed 0.46% to $2,683.24.
(Reporting by Rocky Swift; Editing by Sam Holmes)
