Asian stocks weather bond storm, oil retreats slightly

On Friday, Asian stocks managed to withstand the impact of a significant bond sell-off, which caused longer-term US yields to hit two-decade highs. This surge in borrowing costs worldwide raised concerns about the lofty equity valuations. Oil prices briefly returned above US$100 a barrel, with Brent crude nearing US$105, reigniting worries about inflation.

These factors prompted market participants to expect multiple Federal Reserve rate hikes after the first in over three years. Despite this, the broader MSCI Asia-Pacific index outside Japan remained flat, with most markets, including China, Taiwan, and South Korea, closed for a holiday. Japan's Nikkei increased by 1%, while Australia's resources-heavy shares declined by 0.6%.

Hong Kong's Hang Seng index fell by 1%. Financial experts have warned that the dramatic sell-off in global bonds could prove costly if investors ignore the rising rates. The benchmark 10-year Treasury yield surged 1 basis point to 5.1915%, marking the biggest two-day gain since April 2022. This surge has pushed US mortgage rates to 7%, potentially hindering the housing market.

Meanwhile, Asia's bonds continued the global sell-off, with Japan's 10-year government bond yields climbing 4 basis points to 3.115%, the highest since 1996, and Australia's 10-year government bond yields rising 4 basis points to 5.408%. The US 2-year yields remained steady at 4.9035%, having jumped 16 basis points this week. The Federal Reserve's commitment to rate hikes has had a ripple effect across global markets, with smaller central banks adopting a more hawkish stance and the US dollar strengthening.

In the commodities market, Brent crude prices eased 0.8% to US$105.75 a barrel, after a 3% overnight surge due to a Houthi missile attack on Saudi Arabia, raising fears of supply disruptions.