Asian markets extend rally as traders assess US Treasuries pledge

Asian markets experienced a slight increase on Friday as traders evaluated the US Treasury's decision to reduce long-term bond yields. Analysts, however, cautioned that this alone may not suffice to curb borrowing costs, which have been spiking due to concerns over elevated inflation and government borrowing. Treasury Secretary Scott Bessent's promise of additional support tools did little to alleviate the worries on Wall Street, as investors resumed selling amid these concerns.

The situation was further complicated by the unresolved issue of the Strait of Hormuz, which kept oil prices rising over the past two weeks as tensions between the United States and Iran persisted.

The US Treasury had previously announced plans to double its sovereign bond buybacks, a move that initially provided a much-needed boost to markets. However, long-term rates rebounded on Thursday, leading some experts to view the initial drop as a temporary, "housekeeping" measure. US Treasury Secretary Bessent emphasized that his department possesses a "big toolkit" to address rising yields, including the possibility of increased bond purchases beyond the previously announced scale.

He also suggested that inflation, which has been above the Federal Reserve's 2% target for over five years, would come down once the United States settles the Iran war and oil prices stabilize.

While Wall Street faced headwinds from the rising yields, affecting all three major indexes as tech firms with heavy debt loads declined, Asian markets demonstrated more resilience. Tech-rich Seoul benefited from a rally in chipmakers Samsung and SK hynix, with the former planning a potential shareholder return of up to $79 billion.

SK hynix's stock surged over 12% on Thursday following its announcement of a $29 billion share buyback. Other Asian markets, including Hong Kong, Singapore, Wellington, and Taipei, also experienced gains, although Tokyo, Sydney, and Shanghai saw declines.

The surge in yields was attributed to several factors, including increased government spending commitments and the growing demand for AI infrastructure. Analysts pointed to the substantial supply of corporate bonds, with major tech companies like Amazon, Alphabet, and Meta planning to raise up to $500 billion in their own issuances.

This excess supply could be contributing to the pressure on global sovereign debt markets, with some investors favoring Big Tech over indebted sovereign entities. Additionally, Federal Reserve Chair Kevin Warsh's refusal to offer clear guidance on monetary policy further fueled uncertainty among traders, with markets eagerly awaiting his upcoming speech at the annual meeting of central bankers.