Asian Markets Plunge Amidst Geopolitical Tensions and Rising Bond Yields

Asian Stocks Plunge as US-Iran Airstrikes Push Oil and Bond Yields Higher

By Gregor Stuart Hunter

Market Reactions to US-Iran Tensions

SINGAPORE, Sept 2 (Reuters) – Asian markets experienced a sharp downturn on Wednesday as renewed U.S. airstrikes on Iran drove oil prices to a five-week peak and pushed the yield on the U.S. 10-year Treasury bond to its highest level in nearly three years, intensifying a global bond market selloff.

Stock Market Performance Across Asia

MSCI’s broadest index of Asia-Pacific shares outside Japan tumbled by 2%, while South Korea’s KOSPI plunged nearly 4%. Japan’s Nikkei 225 fell by 2.9%, and S&P 500 e-mini futures declined by 0.1%.

Oil and Bond Markets Respond

Brent crude futures continued their upward trajectory for a second consecutive day as Asian trading resumed, rising 0.9% to $95.45 a barrel. This followed a barrage of U.S. airstrikes on Iran on Tuesday, which had earlier propelled oil prices to a five-week high.

Analyst Insights on Market Volatility

“The looming threat of further disruptions to the Strait of Hormuz has reignited inflation anxieties, triggering a broad selloff in major global equity markets and a rout in bond markets,” noted analysts at Westpac.

Bond Yields Hit New Highs

The yield on the U.S. 10-year Treasury bond reached an intraday high of 4.8122%, marking its peak in almost three years. Concurrently, the yield on the 10-year Japanese government bond rose by 2 basis points to 3.015%, continuing its ascent after hitting a three-decade high earlier in the week.

Expectations for Policy Response

“September kicked off on a highly volatile note as developed market government bonds experienced a sustained selloff,” DBS analysts remarked.

“Brace for a turbulent month ahead as persistently high yields fuel anxiety across all asset classes. If this bond rout is not curtailed, policymakers may be forced to implement more aggressive measures to cap yields,” they added.

Currency and Central Bank Moves

The New Zealand dollar fell by 1% to $0.5834 following the Reserve Bank of New Zealand’s decision to hike interest rates by 25 basis points to 2.75%. While the rate hike was in line with market expectations, a dovish tone in the central bank’s statement weighed on the currency.

Central Bank Messaging

“The RBNZ delivered the expected rate hike but tempered expectations for further tightening,” analysts at Capital Economics noted. “The overall messaging sounded slightly less hawkish than previous communications.”

In the currency market, the U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, rose by 0.1% to 99.79, reaching its highest level since August 17.

Wall Street and Economic Data

Overnight on Wall Street, the S&P 500 slipped by 0.7% and the Nasdaq Composite fell by 1%, as a sharp rise in government bond yields continued to weigh on equities.

US Manufacturing and Fed Rate Hike Expectations

The market declines coincided with data from the Institute for Supply Management, which revealed that U.S. manufacturing activity moderated in August due to a slowdown in new orders, though the sector remained in expansionary territory.

Traders are closely watching the Federal Reserve, with many expecting a rate hike at its upcoming meeting in two weeks, although the outcome remains uncertain.

Market Odds for Fed Action

According to the CME Group’s FedWatch tool, Fed funds futures are pricing a 67% probability of a 25-basis-point increase to benchmark borrowing costs at the U.S. central bank’s two-day meeting ending on September 16. This represents a significant jump from the 39.6% chance recorded a week prior.

Commodities and Cryptocurrencies

In the commodities market, gold fell by 0.6% to $4,304.64 an ounce. In the digital asset space, bitcoin edged down by 0.1% to $77,340.50, while ether dropped by 0.5% to $2,407.01.

(Reporting by Gregor Stuart Hunter; Editing by Jamie Freed and Tom Hogue)

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