Key Takeaways
- Japanese bond yields hit 30-year highs as US markets sold off.
- Asian equities showed mixed performance amid geopolitical concerns.
- US and China trade talks were expected to continue, but no major breakthroughs were anticipated.
Debt markets in Japan and the US experienced significant volatility on Thursday, with Japanese 10-year government bond yields reaching a 30-year high of 3.06%. This rise was attributed to a steep sell-off in the US market overnight, which saw the 10-year US Treasury yield holding steady at 5.11%, its highest level since 2007.
Asian equities exhibited mixed performance, with the MSCI Asia ex-Japan index falling 0.64% and Japan’s Nikkei 225 rising 1.73%. Australian shares, however, hit a more than three-month low, with the S&P/ASX 200 index dropping 1.2%. The mixed reactions reflected investors' concerns over ongoing Middle East tensions and the prospects of trade talks between the US and China.
The US and China were set to continue their trade negotiations, with US Treasury Secretary Scott Bessent announcing a deal to extend the 11-month trade truce. However, market participants remained cautious, with little expectation of major breakthroughs during President Xi Jinping’s first visit to the US in nearly three years.
Geopolitical tensions continued to influence oil prices, which eased slightly from recent highs. Brent crude fell 1% to $102.05 a barrel, while US West Texas Intermediate slipped 0.74% to $91.48 a barrel. The greenback held gains, with the dollar index falling 0.04% to 101.09, while the euro slipped 0.02% to $1.14.
Central bank officials maintained a hawkish stance, with Federal Reserve Governor Michael Barr indicating that recent rate hikes were part of efforts to recalibrate borrowing costs, and signaling more increases may be necessary. Other speeches from key officials were anticipated to provide further guidance.
Despite the geopolitical uncertainties, market participants looked ahead to a series of central bank speeches and economic releases, including US jobless claims, for signals on future interest rate hikes. The focus remained on how these factors would impact global financial markets.
In a podcast, Ray Attrill, head of FX strategy at the National Australia Bank, commented, 'Equities are really showing some signs of creaking under the weight of ever-rising bond yields. And in that sort of risk-off environment, it still seems to be the case that the US dollar does find safe-haven support.'
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
