Asian stocks weather bond storm, oil retreats slightly

Asian shares held their nerve on Friday as a relentless bond selloff pushed longer dated US yields to two-decade highs, raising borrowing costs worldwide and threatening lofty equity valuations.

European bourses are set for a higher open, with pan-region stock futures up 0.6% as oil prices retreated a little. Brent crude eased 1.2% to $105.3 a barrel, after climbing 3% overnight, as Iranian President said it was up to the US to choose when the war will end.

Still, the return of oil above $100 a barrel has fuelled inflation fears, bolstering bets on multiple Federal Reserve rate hikes after its first move in more than three years and putting the dollar on track for a 1% weekly gain.

Chinese President Xi Jinping is in Washington for talks with President Donald Trump, though beneath the fanfare there has been scant evidence of breakthroughs on thorny issues over AI, trade, Taiwan or the war with Iran.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.1%, with most markets including Chinese mainland, Taiwan and South Korea closed for a holiday.

Japan's Nikkei rose 1.3%, while Australia's resources-heavy shares fell 0.4%. Hong Kong's Hang Seng index skidded 1.4%.

Nasdaq futures rose 0.3% and S&P 500 futures inched up 0.1%

Risk assets are under threat from a dramatic selloff in global bonds, as inflation worries and fiscal strains push investors to demand ever-higher returns particularly on long-dated debt.

"The world's bond markets are screaming, and ignoring it could prove very expensive," said Nigel Green, CEO of deVere Group, a financial advisory firm.

"Once risk-free rates sit above 5% in the world's largest economy, every asset on the planet has to justify its price against that. Equities, property, private credit, emerging market debt - nothing's immune."

The benchmark 10-year Treasury yield rose 1 basis point to 5.1751%, having surged 20 bps in just two days to a new 19-year peak of 5.2251%. That was the biggest two-day gain since April last year when Trump's Liberation Day tariffs spooked markets.

Thirty-year US bond yields were steady at 5.4671%, having surged 16 bps over the past two days to hit 5.5016%, the highest since 2004. That lifted US mortgage rates to 7%, hamstringing the housing market.

Asian bonds extended the global selloff, with Japan's 10-year government bond yields hitting a top of 3.115%, the highest since 1996, while five-year yields climbed to a record high of 2.41%.

Australia's 10-year government bond yields rose 2 bps to 5.394%.

GLOBAL HIKING CYCLE REACHES SCANDINAVIA

There was no respite at the short end of the Treasury curve either. Fed funds futures now imply a 73% chance of another rate hike next month, up from about 53% earlier this week, and more than 90 basis points of tightening still to come this cycle, equivalent to almost four quarter-point hikes.

The US 2-year yields were steady at 4.8993%, having jumped 16 bps this week to hover near a two-year high.

The Fed's return to rate hikes last week is rippling across global markets. As inflation pressures intensify, smaller central banks are shifting to a more hawkish stance, with Norway's Norges Bank raising rates on Thursday and Sweden's Riksbank signalling it was likely to follow suit by the year end.

Mexico's Banxico held rates steady but dropped its previous guidance for a prolonged pause.

That is keeping the US dollar firm, having risen 1% this week to 101.22 against its major peers, about the highest since late July.

The dollar, however, lost 0.4% to 158.23 yen, retreating from a three-week peak, after Japan's Finance Minister Satsuki Katayama said US President Donald Trump raised concern about yen weakness during a summit with Japanese Prime Minister Sanae Takaichi earlier this week.