Brent crude jumped 3% to about $107.44 a barrel in Asian trading on Monday, and the move pushed 10-year US Treasury yields to 5.2%. The selling spread into Asia-Pacific sovereign bonds and knocked China's stock market to a 12-month low, while gold dropped 2.5%.
Oil rally pressures Treasuries
Brent crude gained 3% to about $107.44 a barrel in Asian trading Monday after President Donald Trump rejected Iran's proposal to reopen the Strait of Hormuz over the weekend. The jump revived selling in government debt and knocked down regional equities.
10-year Treasury yields rose 0.04 percentage points to 5.2%, while futures for the S&P 500 and Nasdaq 100 fell 0.3% and 0.8% respectively. Ecaterina Bigos, senior market strategist at BNP Paribas Asset Management, said strong growth combined with high energy prices threatens future inflation expectations. Bigos also pointed to heavier corporate bond issuance tied to the AI build-out as a source of the broader sell-off, creating competition for capital in the bond market.
Asia-Pacific bonds under strain
China's CSI 300 index slipped 2.5% to its lowest level since August last year, and South Korea's Kospi fell the same amount as both markets resumed trading after mid-autumn festival holidays. In Japan, two-year government bond yields climbed as much as 0.05 percentage points to 1.97% before easing to about 1.96%. Two-year Japanese government bonds have not traded above 2% since 1995. The move followed Bank of Japan minutes showing some members pushing for faster rate rises to contain inflation.
Ten-year yields in Australia and New Zealand rose 0.05 and 0.02 percentage points respectively, and Korea's 10-year bond climbed 0.15 percentage points to 4.54% as trading resumed after a holiday break. Norbert Ling, Asia Pacific head of fixed income portfolio management at Invesco, said: "The repricing in the US Treasury market is spilling over into other rates markets." China's 10-year bond bucked the trend, trading flat at 1.67%.
Refined products carry the real signal
Ling said prices for refined oil products matter more than the headline Brent price because they hit inflation more directly, and those prices have risen partly on production-capacity cuts in Europe and Asia in recent years.
Gold, a traditional safe haven asset, fell 2.5% to $4,178 a troy ounce in early trading. Investors said central banks holding bullion reserves have sold during periods of higher energy prices to protect their currencies.
Source: FT.com
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