HK stocks fall amid bond swings, wait for US jobs data

Asian shares experienced a decline on Friday as investors navigated significant fluctuations in bond and currency markets prior to crucial US employment figures, along with a growing military expansion in the Gulf region, which contributed to elevated oil prices. In Hong Kong, the Hang Seng Index experienced a substantial drop of 513 points, or 2.09%, bringing the index to open at 24,099.

The China Enterprises Index fell by 141 points, or 1.7%, to 8,078, while the tech index decreased by 76 points, or 1.81%, reaching 4,176. Bond markets remained the focal point of volatility overnight, with the benchmark 10-year US Treasury yields reaching their highest level since 2002 at 5.34% after peaking at the largest quarterly increase in 32 years.

Later, they stabilized and were steady at 5.2512% in Asia. Fiscal concerns in France led to a widening spread between French and German sovereign bond yields, surpassing 140 basis points, the widest gap since 2012, causing instability in European stocks and a negative impact on the euro. The euro slipped to as low as US$1.1215, the lowest since May 2025, and depreciated against the yen and the Swiss franc.

With mainland markets closed until Wednesday for the National Day Golden Week holiday, other regional markets commenced lower. In Tokyo, the Nikkei Index decreased by 643 points, or 0.93%, to open at 68,313, and experienced a dip to 585 points at one point during the morning. In Seoul, the Kospi Index began at 33 points, or 0.47% lower, at 6,938, before slightly rebounding and ending 12 points higher at one point during the morning.

All eyes are now on the US nonfarm payrolls to be released later in the day. Forecasts predict a rise of 90,000 jobs in September, with the employment rate expected to remain steady at 4.1%. The focus will be on hourly earnings following the ISM survey, which reported a significant surge in prices paid, indicating heightened cost pressures.

Fed officials are currently preoccupied with inflation and price pressures, and a strong wages report could significantly influence US interest rates, Treasuries, and the USD, according to Chris Weston, head of research at Pepperstone. While risk assets have largely accommodated the rise in US real yields and nominal Treasury yields performed remarkably well, a persistent increase in the term premium could pose more significant challenges.

Currently, markets anticipate a 25% probability of the Fed raising interest rates again in October, down from 69% a week ago after two top policymakers advocated for further data consideration before deciding on future interest rate actions. However, a rate hike in December remains fully priced in. Dovish remarks from Fed officials sparked a substantial rally in two-year Treasuries overnight, with the yield curve steepening as short-end yields declined.

The two-year yield rose by one basis point to 4.8039%, up from a 10 basis point decrease overnight. Conversely, the 10-year Treasury yield increased by two basis points to 5.2575%, having dropped six basis points overnight after reaching a 24-year high of 5.3445% due to a massive sell-off that eventually attracted some buyers back into the market.