Asian markets tumble as US-Iran fighting lifts oil and bond yields

SINGAPORE: Stocks slumped in Asian trading on Wednesday as a bond market-induced selloff on ‌global markets spilled over into the region, after renewed attacks by the US on Iran pushed oil prices higher.

MSCI’s broadest index of Asia-Pacific shares outside Japan tumbled 1.5% as South Korea’s KOSPI dropped more than 3%, while the Nikkei 225 was down 2.6%. S&P 500 ​e-mini futures were down 0.1%.

Brent crude futures extended gains into a second day as trading resumed in Asia, ​rising 1.3% to $95.91 a barrel after the US launched a barrage of airstrikes on Iran on ⁠Tuesday, which earlier pushed oil prices to a five-week high.

“The threat of further disruptions to the Strait of Hormuz has ​brought about renewed anxiety over inflation, driving a selloff in stocks across most major markets and a rout in global ​bond markets,” Westpac analysts wrote.

The yield on the US 10-year Treasury bond hit an intraday high of 4.8122%, its highest level in almost three years, while the yield on the 5-year Japanese government bond rose to 2.295%, its highest level on record.

“September kicked off ​on a shaky note as developed market government bonds continued to sell off,” DBS analysts wrote.

“Brace for a volatile ​month ahead as high yields cause angst across the asset classes,” they added. “If the bond rout does not get stemmed, policymakers would ‌probably ⁠have to resort to more aggressive measures to cap yields.”

The kiwi dollar was down 0.6% at $0.5855 after the Reserve Bank of New Zealand hiked interest rates by 25 basis points to 2.75%, as expected by markets, though dovish language in the central bank’s statement weighed on the currency.

The US dollar index , which measures the greenback’s strength against a basket of ​six currencies, was up 0.1% ​at 99.79, its highest since ⁠August 17.

Overnight on Wall Street, the S&P 500 slipped 0.7% and the Nasdaq Composite fell 1% as a surge in government bond yields weighed on equities.

The declines came as data from ​the Institute for Supply Management released on Tuesday showed U.S. manufacturing activity moderated in August ​amid a slowdown ⁠in new orders, but remained in expansionary territory.

Traders believe that the Federal Reserve is likely to lift interest rates at its next meeting in two weeks, though a hike is not certain.

Fed funds futures are pricing an implied 67% probability of ⁠a 25-basis-point ​increase to benchmark borrowing costs at the U.S. central bank’s two-day meeting ​ending on September 16, compared to a 39.6% chance a week ago, according to the CME Group’s FedWatch tool.

Gold was down 0.8% at $4,295.70 an ​ounce, while bitcoin slipped 0.6% to $76,979.55 and ether was 0.9% lower at $2,397.78.