Stocks fare better as bonds face rough September

Global bond markets experienced a tumultuous September as yields soared to multi-decade highs, while stocks in Asia fared better. Japan's 10-year bond yields neared multi-decade peaks, and Germany and France's sovereign bond yields hit 17-year and 18-year highs, respectively. The surge in borrowing costs, driven by deteriorating government finances, a glut of issuances, and rising inflation due to the US-Israeli war on Iran, kept energy costs elevated.

Despite the bond market turmoil, global equities held up relatively well, largely unfazed by the rising yields.

MSCI's broader Asia-Pacific index of shares (excluding Japan) rose 0.2% in early trading, on track for a monthly decline of just over 1%. Japan's Nikkei and South Korea's Kospi also showed resilience, with the Nikkei rising 0.9% and the Kospi gaining 1.4%. Nasdaq and S&P 500 futures remained relatively stable, with minor gains of 0.13% and 0.16%, respectively.

The resilience in equity markets can be attributed to upbeat corporate earnings, a strong global economy, and continued hype around artificial intelligence. Citi's head of Asia-Pacific trading strategy, Mohammed Apabhai, noted that while bond yields are rising, the impact on stocks has been relatively limited so far. Many macro funds and institutional investors in New York are eagerly awaiting the potential impact of higher yields on equity markets, particularly outside of the tech space.