Asian bond prices fell, tracking losses on Wall Street, as rising oil prices and stronger-than-expected US economic data stoked inflation fears and boosted bets on further interest rate hikes.

Following a sell-off in US Treasuries during New York trading hours, government bonds in Japan, Australia and New Zealand also declined. Weak demand for the US$70 billion 5-year Treasury note pushed its yield above 5% for the first time since 2007. The 10-year Treasury yield jumped 15 basis points to 5.11%, marking its biggest one-day gain since market turmoil triggered by President Trump’s tariff announcement in April 2025.

Brent crude pared gains in early Thursday trade to stand at $102.84 a barrel, after climbing nearly 4% in the previous session.

The US Dollar Index hovered near its highest level since late July. Gold prices sank close to a one-week low as rising interest rates diminished the appeal of the non-yielding precious metal.

Asian equities edged down 0.3%, while Japanese stocks posted modest gains after the Tokyo market reopened following a three-day holiday. Sino-US markets drew close attention amid a two-month extension of the trade truce and Chinese President Xi Jinping’s state visit to the United States, his first in 11 years.

The prospect of higher energy costs clashing with resilient US economic momentum is likely to keep weighing on bond and equity markets, as investors reassess how much further the Federal Reserve may need to tighten monetary policy. The Fed delivered its first rate increase since 2023 last week, and traders have ramped up wagers on additional hikes.

Traders are also monitoring geopolitical developments closely. Iranian President Masoud Pezeshkian stated that Iran would not guarantee freedom of navigation through the Strait of Hormuz as long as US sanctions and blockades remain in place. His remarks underscore the difficulty of reaching a peace deal despite efforts to resume negotiations.

US diesel futures rose after the Trump administration struck a deal with refiners on voluntary export curbs, an alternative to a full ban on overseas shipments.

Meanwhile, data showed US mortgage rates climbed to their highest level in more than two years. The preliminary S&P Global US Composite Purchasing Managers’ Index for September hit its highest reading since July 2021, pointing to accelerating business activity.

Last week, Fed officials raised borrowing costs to a range of 3.75% to 4%. Fed Chair Kevin Wash said the move removed “any vestige of accommodative monetary policy”. Fed Governor Michael Barr indicated that further rate increases may be required to bring inflation back to the central bank’s 2% target.

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