Most Asian stock indices were heading for weekly losses on Friday as stress in global bond markets showed little sign of easing, while rising tensions in the Gulf pushed oil prices to one-month highs and kept inflation risks in focus.
US Treasury yields resumed their climb after the Treasury Department’s surprise intervention on Wednesday provided only brief relief from the bond sell-off.
The renewed rise in yields came despite Treasury Secretary Scott Bessent saying the US government could further increase its purchases of Treasury securities and suggesting that the administration could pursue fiscal consolidation.
Analysts remained sceptical that the government could find sufficient spending cuts to significantly reduce a US budget deficit exceeding 6% of gross domestic product.
Interest payments alone are expected to reach about $1.2 trillion this year, adding to concerns about the sustainability of the country’s fiscal position.
Steven Zeng, a strategist at Deutsche Bank, warned that markets could increasingly resist further government intervention if investors believe record debt levels and large fiscal deficits are driving the underlying pressure.
He also cautioned that an activist approach by the Treasury could affect the institution’s credibility if it undermines the regular and predictable framework that has historically supported the US government bond market.
Investors reflected that concern by pushing the yield on 30-year US Treasury bonds back to about 5.25%, while the benchmark 10-year yield reached 4.71%.
Higher borrowing costs could have wider implications for global financial markets, particularly as major technology companies continue to borrow heavily to fund artificial intelligence infrastructure and other capital expenditure.
Higher bond yields also increase the discount rate applied to future corporate earnings, potentially putting additional pressure on equity valuations.
The impact was visible across Asian markets.
Japan’s Nikkei fell 0.8% on Friday, taking its weekly decline to 4.0%.
South Korean and Taiwanese stocks edged higher during the session but remained lower for the week.
Chinese blue-chip stocks declined 0.1%, while MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.6%.
European markets were also subdued, with EUROSTOXX 50 and DAX futures slightly lower and FTSE futures down 0.1%.
In the United States, strong corporate earnings provided some support, with S&P 500 futures rising 0.1% and Nasdaq futures gaining 0.2%.
The technology sector faces another major test next week when Nvidia reports its latest results.
Investors will be closely watching the chipmaker’s outlook for infrastructure demand and data-centre revenue, with its results likely to influence the broader artificial intelligence trade.
The recent performance of Walmart highlighted the risk facing companies with elevated market expectations.
Walmart shares fell 9% on Thursday after the retailer reported a comparable-sales miss, demonstrating how sharply markets can react when companies fail to meet high expectations.
Meanwhile, renewed US pressure on Iran added another source of uncertainty for global markets.
Bessent said the United States would impose “the toughest sanctions in history” on Iran, expanding on President Donald Trump’s threat of economic warfare against countries supporting Tehran.
The threats further reduced expectations of an agreement that would fully reopen the Strait of Hormuz, a critical route for global oil shipments.
Brent crude climbed to a one-month high of $94.71 per barrel before profit-taking reduced some of the gains.
Brent futures were last down 0.7% at $93.12 per barrel but remained more than 5% higher for the week.
US West Texas Intermediate crude also fell 0.7% to $86.18 per barrel.
The rise in oil prices is adding to inflation concerns at a time when investors are already assessing the potential impact of higher borrowing costs.
The US dollar, meanwhile, remained under pressure amid concerns that rising government debt and policy uncertainty could weaken the currency’s purchasing power.
The dollar index was down almost 0.9% for the week at 98.802 after touching a three-month low overnight.
The euro was up 1% for the week at $1.1686 after reaching a 14-week high.
Against the Swiss franc, the dollar fell 1.7% for the week to 0.7995 francs, marking its biggest weekly decline since January.
The dollar was relatively stronger against the Japanese yen, trading around 159.07 yen.
Japan’s core consumer inflation accelerated in July as companies passed higher import costs on to consumers.
A separate manufacturing survey showed a surge in new orders, further strengthening expectations that the Bank of Japan could raise interest rates in September.
Markets have largely priced in a 25-basis-point increase that would take the policy rate to 1.25%, but investors are looking for stronger signals that Japanese policymakers are prepared to accelerate monetary tightening.
Gold also remained elevated as investors sought alternative stores of value amid concerns over US fiscal policy and the outlook for the dollar.
Spot gold was steady at about $4,513 an ounce after gaining 3.1% for the week.
The combination of elevated bond yields, higher oil prices, currency weakness and uncertainty over US fiscal and geopolitical policy is leaving global investors to navigate a more challenging market environment heading into the final weeks of August.
