Bonds shaky, oil eases off highs amid trade, peace talks

Japanese government bonds experienced a sharp decline on Thursday, mirroring a drop in US Treasuries, as debt markets grew increasingly uneasy. Meanwhile, Asian equities exhibited a mixed performance as investors grappled with Middle East tensions and anticipated talks between the United States and China. Following a three-day Japanese holiday, the 10-year Japanese government bond yield surged to a 30-year peak in response to a significant sell-off in the US market overnight.

Oil prices retreated from recent highs, while the US dollar exhibited resilience after Iranian President Mahmoud Ahmadinejad affirmed Iran's resolve against surrendering, following a warning from US President Donald Trump that he could "annihilate" Iran. Market participants turned their attention to a string of central bank speeches and economic releases, including US jobless claims, for clues on potential interest rate hikes.

A summit between US President Donald Trump and Chinese President Xi Jinping was also closely monitored, with expectations for advancement in trade relations. Financial expert Ray Attrill noted that equities were displaying signs of strain under the strain of escalating bond yields, emphasizing the continued role of the US dollar as a safe-haven asset in a risk-averse market.

The MSCI Asia ex-Japan index slipped 0.64%, while Japan's Nikkei 225 rose 1.73%. Australian shares fell to a more than three-month low, with the benchmark S&P/ASX 200 index slipping 1.2%. Although Xi Jinping's first visit to the United States in nearly three years was not anticipated to produce a major breakthrough, it might allow Washington and Beijing to extend their current 11-month trade truce.

Treasury Secretary Scott Bessent announced that a deal had been reached for an extension as Trump personally met with Xi at Joint Base Andrews in Maryland. Bond yields have climbed to multi-year highs as traders factor in the possibility of central bank hikes to tackle persistent inflation. Japan's 10-year government bond yield increased by 8 basis points to 3.06%, a level not observed since August 1996, while the 30-year yield rose by 5.5 basis points to 4.12%.

Conversely, the US 10-year Treasury yield remained steady at 5.11%, having reached its highest level since 2007 overnight. Central bank officials maintained a cautious stance as rising oil prices fueled inflationary pressures. Fed Governor Michael Barr stated on Wednesday that the central bank's recent rate hike was part of efforts to recalibrate borrowing costs, signaling that additional increases might be necessary.

Market participants anticipate speeches from other Fed officials, such as New York Fed President John Williams and Fed President Beth Hammack, on Thursday. Geopolitical tensions persisted, keeping energy prices elevated. Despite Iran's communication with US envoys at the UN General Assembly, both sides indicated little progress in resolving the conflict.

Trump reiterated threats of further escalation, while Iran's President Ahmadinejad vowed not to yield. Brent crude oil prices fell by 1% to $102.05 a barrel, while US West Texas Intermediate dropped 0.74% to $91.48 a barrel. Gold prices increased by 0.35% to $4,301.89 per ounce. The dollar index declined by 0.04% to 101.09, while the euro slipped by 0.02% to $1.14.

The Japanese yen strengthened by 0.24% to 157.91 per dollar. In the economic arena, the US Labor Department was expected to report that initial jobless claims likely rose to 201,000 in the week ending September 19, while continuing claims likely increased by 15,000 to 1.745 million in the preceding week. Analysts forecasted a modest rise in new home sales to 615,000 units in August, up from 607,000 units in July.

European stock futures were lower, with the Euro Stoxx 50 futures falling 0.33% to 6,304.00, DAX futures slipping 0.33% to 25,525.00, and FTSE futures dropping 0.35% to 10,739.50. Bitcoin edged up by 0.07% to $84,288.53, while Ether climbed by 0.46% to $2,683.24.