Asian stocks to gain as US Treasury supports bonds

Asian stocks were poised for an upward trend as the bond market's pressure eased following the United States Treasury's announcement to buy back longer-dated debt to control borrowing costs. Bond prices surged and the US dollar slipped to a three-month low. Futures for Japan, South Korea, and Australia indicated potential gains at the market opening, leading to a broader regional gauge to reverse two days of losses.

US equity-index futures also increased early in Asian trading after the S&P 500 Index recorded a slight gain on August 18, despite declines in chipmakers. This shift in stocks occurred after a rally in 30-year Treasuries, causing yields to drop 10 basis points to 5.18 per cent during the New York session. The rise in yields was sparked by the US Treasury's announcement of plans to increase buybacks of securities ranging from the 10-year to the 30-year, following a spike in yields to multi-decade highs.

Gold surged to its highest level since early June in the previous session as bond yields fell. Oil continued its four-day upward trend, with US crude trading close to $85 a barrel, while Bitcoin reached approximately $70,000 (SG$89,000) as US President Donald Trump urged Congress to pass a crucial crypto bill while hosting industry leaders in the White House.

Long-dated government yields rose globally, with the US 30-year yield hitting its peak since 2007. A 10-year Treasury auction last week attracted the highest financing cost for that maturity since 2007, and a 30-year sale the day afterward cleared at the highest yield since 2001. The Treasury did not specify how the operations would be funded, but it typically relies on issuing bills for its fluctuating funding requirements.

If officials were essentially substituting longer-dated debt with short-term securities, the move resembled the Federal Reserve's "Operation Twist." The administration appeared determined to secure a victory, possibly through artificial efforts to keep long Treasury rates contained, according to Jack McIntyre, a portfolio manager at Brandywine Global Investment Management.

"They have to try something. Sentiment around the long-end globally is about as bearish as I have ever seen in a very long time." In geopolitical news, the US planned to initiate an unconventional economic warfare campaign against Iran, citing Iran's failure to reach an agreement with the administration. Meanwhile, investors examined minutes from the Federal Reserve's recent meeting, which revealed that some officials advocated for raising interest rates in July, and many believed additional tightening might be necessary if inflation failed to recede. However, uncertainty persisted due to the Iran war's impact on inflation expectations.