Debt Markets on Edge as US, Japanese Yields Hit Multi-Year Highs

Bond markets were under strain on Thursday after a sharp overnight sell-off in US Treasuries spilled into Japan, pushing benchmark yields to levels not seen in decades. Asian stocks, meanwhile, traded mixed as investors kept an eye on interest rates, tensions in West Asia and upcoming talks between the United States and China.

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Japanese markets returned from a three-day holiday to a fresh bout of selling in government bonds. The country’s 10-year yield climbed 10 basis points to 3.075%, its highest level since August 1996. 

US Treasuries had already set the tone overnight. The 10-year US yield rose another 1.1 basis points to 5.125% after reaching its highest level since 2007. 

Behind the rise in yields is a familiar concern for markets: inflation remains persistent, leaving traders to consider the possibility of further interest rate increases by major central banks. 

Asian stocks paint a mixed picture 

The pressure in bond markets did not translate into a uniform move across equities. 

The MSCI Asia ex-Japan Index dropped 0.94% to 891.19, while Japan’s Nikkei 225 rose 1.30% to 65,861.04. 

Australian shares fell to their lowest level in more than three months, with the S&P/ASX 200 down 0.7%. China’s CSI300 Index declined 1.29%. 

Attention was also on Chinese President Xi Jinping’s visit to the United States, his first in nearly three years. While the meeting was not expected to produce major breakthroughs, the possibility of extending the 11-month trade truce between Washington and Beijing remained in focus. 

US Treasury Secretary Scott Bessent said the two sides had reached an agreement on an extension as President Donald Trump welcomed Xi at Joint Base Andrews in Maryland. 

Rate expectations keep pressure on bonds 

The selloff in sovereign bonds is taking place as investors reconsider how far central banks need to go in order to tame inflation. 

Fed Governor Michael Barr said on Wednesday that the latest interest rate hike by the US central bank is part of a move to realign interest rates and more rate hikes could be needed. 

There were more clues to come on Thursday, with New York Fed President John Williams and Cleveland Fed President Beth Hammack set to speak. 

In addition, investors were looking forward to the release of more data from the US economy. Initial claims for unemployment were expected to climb to 201,000 for the week of September 19, while continuing claims were expected to climb by 15,000 to 1.745 million in the previous week. 

New home sales for August were expected at 615,000, higher than the 607,000 reported in July. 

Oil Prices Down Despite Recent Increase 

Oil prices fell, even though the crisis between Iran remained in focus. 

Brent crude was down by 0.79%, trading at $102.27 a barrel, and West Texas Intermediate crude fell by 0.79%, trading at $91.43. 

The Iranian authorities had been in talks with the Americans at the UN General Assembly, but the update mentioned little success in bringing the crisis to an end. The current geopolitical climate has kept oil prices high amid inflation concerns in the market environment. 

Dollar holds much of its recent ground 

Currency markets were relatively steady. 

The dollar index eased 0.05% to 101.08. The euro was up 0.03% at $1.1383, while sterling gained 0.02% to $1.3239. 

The Japanese yen strengthened 0.24% to 157.91 against the dollar. 

Futures signal a weaker start in Europe and US 

The cautious mood carried into equity futures. 

Euro Stoxx 50 futures were down 0.35% at 6,303, while DAX futures slipped 0.37% to 25,514. FTSE futures declined 0.34% to 10,740. 

US S&P e-mini futures were 0.23% lower at 7,754.25. 

For markets, Thursday’s moves left several issues competing for attention at once. Japanese and US bond yields are back at levels last seen decades ago, oil remains above $100 a barrel for Brent, and investors are waiting for the next signals on interest rates while also tracking developments between Washington and Beijing.