Bond selloff pressures stocks as oil crosses US$91 a barrel

Global bond yields surged to record highs on Tuesday as Middle Eastern fighting and rising oil prices pressured stock markets worldwide. The 10-year US Treasury yield climbed to 4.78 percent, nearing a 20-month peak. Japan's 10-year yield neared 3 percent for the first time in decades. US futures steadied after modest overnight declines, but investors remained cautious ahead of upcoming US jobs data on Friday, which could trigger an interest rate hike cycle.

Higher oil prices and rising tensions between the US and Iran have reignited inflation concerns, which negatively impact bonds while Federal Reserve Chair Kevin Warsh hinted at potential policy tightening if inflation persists. Macro strategist Wee Khoon Chong noted that hawkish monetary policy, geopolitical risks, and inflation are converging to keep global term premiums and long-term yields high.

Japan's Nikkei slipped 0.2 percent, while the Hang Seng fell 0.7 percent, dragged down by Shein, a fast-fashion retailer that saw a lackluster debut. German and French long-term bond yields hit 15-year highs, and French bond futures reached a 15-year low in Asian markets. Brent crude prices crossed the US$91 per barrel mark, and Europe's gas price hit a three-and-a-half-year high.

Markets anticipate interest rate hikes in New Zealand on Wednesday and Europe the following week. US and Japanese rate hikes are also favored, despite geopolitical tensions, including US threats of further strikes against Iran and escalating conflict between Russia and Ukraine. Global borrowing costs have been consistent, providing limited support to the US dollar, with the euro and yen remaining stable.

Inflation data will be released in Europe later Tuesday. In Hong Kong, Shein shares dropped in early trading to below their newly reduced offer price, due to tariff and duty changes affecting its low-cost business model.