Bond selloff slows, oil climbs further

Global bond yields remained relatively stable near their highest levels in decades, amid growing concerns about mounting sovereign debt. Oil futures climbed for a fourth consecutive day due to dwindling expectations of a Middle East conflict resolution. Wall Street futures indicated a slight gain of about 0.1% after Asian stocks experienced a decline, primarily driven by worries over the outlook for semiconductor companies.

South Korean shares ended nearly 6% lower, marking the largest one-day drop in three weeks. Long-term borrowing costs from the US to Germany and Japan surged as investors grappled with soaring government debt and rising inflation, partly fueled by the ongoing conflict in Iran. Consequently, the yield on the US long bond settled around 5.27% on Wednesday, following a peak of 5.3371% the previous day.

The selloff in bonds carries significance, as long-end sovereign yields serve as a benchmark for the pricing of numerous other financial assets, including mortgage rates. According to Jason Da Silva, director of global investment strategy at Arbuthnot Latham, the persistence of inflation and excessive government spending could propel bond yields higher. He foresees more frequent bouts of pressure from bond investors, given the lack of aggressive measures by Western governments to curb spending.

Japan's benchmark 10-year sovereign yield neared a three-decade high, signaling a warning for global debt markets that have largely relied on low Japanese rates to funnel investment abroad. The inflation outlook remains concerning, with limited progress towards an agreement to open the Strait of Hormuz. Oil futures experienced a 0.6% increase on the day, with light crude priced at US$85.48 per barrel and Brent crude at US$91.62 per barrel.

The US Federal Reserve will release minutes from their July meeting, during which they maintained interest rates while Chair Kevin Warsh offered limited insights into potential future actions regarding persistent inflation. The US is also scheduled to issue US$16 billion in 20-year debt. Governments must now confront a crucial decision between fiscal prudence and significantly higher borrowing costs, with markets persistently monitoring the outcome.

In China, shares of the world's largest humanoid-robot maker, Unitree, surged 600% during its debut, an offering that was more than 8,000 times oversubscribed by retail investors. The bond selloff and reports that Anthropic's annual revenue run-rate surpassed US$65 billion, albeit below market expectations, triggered selling pressure in chipmaking shares. The cautious market sentiment has provided some relief to a generally softening dollar in currency markets, albeit without substantial movements.

The US dollar index slipped 0.2% to 99.405. Canada's dollar rose slightly after US President Donald Trump temporarily halted a 50% tariff on Canadian goods for three days, citing a negotiated deal between the nations. The euro edged 0.25% higher, trading at US$1.160325, and the yen hovered near 160 against the dollar, a level viewed as a potential trigger for another round of official intervention.

European inflation data and earnings reports from Lowe's, Target, and TJX are anticipated later on Wednesday, with heightened scrutiny following weaker-than-expected US retail sales data released the previous week.