The global bond market experienced a sharp selloff on Thursday, with Japanese benchmark yields hitting their highest levels in over a decade. This trend followed significant selling in German bunds and spread across other fixed income markets. Asian stocks, however, were buoyed by a temporary delay in US tariffs on Mexico and Canada.
Japan’s Bond Yields Reach a Decade High
Japan’s 10-year bond yield surged to 1.5%, marking its highest level since June 2009. The rise comes amid rising inflation and increasing borrowing costs in Japan. In the US, Treasury yields also increased for the third consecutive day, with the 10-year yield climbing to around 4.3%. Similarly, bond yields in Australia and New Zealand saw a rise of approximately 10 basis points.
These moves reflect the geopolitical uncertainty of recent weeks, including concerns about the US’s stance on Ukraine and fluctuating news regarding tariffs. Market participants are closely monitoring how these developments will impact global growth and inflation. The fixed-income market is also being affected by Germany’s ambitious spending plans, as Chancellor-in-waiting Friedrich Merz declared that the country would take “whatever it takes” to defend itself.
Geopolitical Tensions and Bond Market Volatility
Citi strategists, led by Jamie Searle, highlighted that such pledges from governments can influence bond valuations. They pointed to European Central Bank President Mario Draghi’s 2012 “whatever it takes” statement, which offered relief during the eurozone crisis. However, this time, the announcement signals potential risks to bond prices.
The bond selloff was ignited by a sudden drop in German bunds, which caused 10-year bund yields to rise by 30 basis points on Wednesday, the largest increase since 1990. The euro strengthened in response to the news, reaching levels not seen since November.
Stock Market Moves Amid Bond Volatility
While bond yields surged, equities in Japan and South Korea rose. Chinese stocks, however, showed mixed movements during early trading. In the US, the S&P 500 ended Wednesday up by 1.1%, and the Nasdaq 100 climbed 1.4%. An index of US-listed Chinese companies jumped 6.4%, marking its largest increase in three months.
Despite these gains, US equity-index futures fell, driven largely by weak performance in tech stocks. Marvell Technology’s disappointing revenue forecast sent shares lower in after-hours trading. Similarly, Broadcom, another chipmaker benefiting from the AI boom, saw its stock drop by 3.5% in after-hours trading ahead of its earnings report.
US Auto Tariffs Face Delay
In a positive development for equities, the White House announced a one-month delay on auto tariffs for Mexico and Canada. Following talks with Canadian Prime Minister Justin Trudeau, White House press spokesperson Karoline Leavitt stated that US President Donald Trump is open to considering further tariff exemptions.
Kevin Brocks, director at 22V Research, emphasized that a concrete deal would provide the best outcome for the stock market, though he cautioned that prolonged uncertainty would continue to serve as a negative economic factor.
Dollar and Yen Movements
The US dollar index remained steady after falling 1% on Wednesday, losing ground against most major currencies. Its losses were particularly pronounced against the euro. Meanwhile, the yen strengthened by approximately 0.6%, reaching just below 149 per dollar.
Economic Data and Forecasts
Asian markets are awaiting important economic data, including unemployment figures from the Philippines, inflation data from Vietnam, and an interest rate decision from Malaysia. In China, officials announced a target of about 5% growth for 2025, marking the first time in over a decade that the country has set the same growth target for three consecutive years. This underscores China’s resolve to achieve ambitious growth despite the ongoing trade war.
Later on Thursday, the European Central Bank and Turkey’s central bank are set to announce interest rate decisions.
US Economic Data and Market Outlook
In the US, initial jobless claims will be released Thursday ahead of the Friday payrolls report. Options traders expect the S&P 500 to move by 1.3% in either direction, which would be the largest move since the regional bank turmoil in March 2023.
Oil prices remained near their lowest levels in six months, while gold held steady near its record highs. The volatility in both bond and equity markets signals continued uncertainty in the global financial landscape.
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