Asian bonds follow US Treasuries lower, dollar slips

Asian bond markets slipped and the US dollar weakened on August 21, as investors grew doubtful that the US may soon reduce borrowing costs. Australian and New Zealand bonds opened lower after 30-year US bond yields surged on August 20. The yield jumped six basis points to close at 5.25%, recovering much of the decline triggered by the Treasury's unexpected increase in buybacks of long-term bonds. The 10-year yield also pulled back from its lows to close at 4.70%.

Asian stock markets mirrored Wall Street's decline, with the MSCI Asia-Pacific index falling 0.2%. Earlier, the S&P 500 fell 0.9%, with Walmart suffering the biggest loss since 2022 following weaker-than-expected sales. The Nasdaq 100 declined 0.7% for a fifth consecutive loss.

A brief respite was noted in the early hours of August 21 as oil prices fell 0.7% to US$93.10 a barrel. The drop followed President Donald Trump's threats against Iran for failing to accept a deal, which had previously caused a rally in oil prices due to fears of potential conflict.

The bond market volatility reflected growing concerns about persistently high long-term yields, stemming from years of high inflation and increased government spending. Mark Malek, chief investment officer of Muriel Siebert & Co, noted that while the Treasury's move to increase buybacks was initially well-received, the impact was likely to be short-lived, as it did not address the root causes of the rising yields.

Meanwhile, the Japanese yen remained steady after Japan's key price gauge increased for the second month in a row, pushing the Bank of Japan closer to another interest rate hike. The yen traded at around 158.90 against the US dollar, after previously sliding below 159 in the previous session. Gold held steady around US$4,530 an ounce, while Bitcoin surpassed US$70,000 for the first time in over two months after a high-stakes meeting between President Trump and crypto industry leaders.