Asian shares head for weekly fall as global bond market stress persists

MSCI's broadest index of Asia-Pacific shares outside Japan added 0.5% | Image: Bloomberg

Most Asian share indices were heading for weekly falls on Friday as stress in global bond markets showed little sign of abating, while a diplomatic deadlock in the Gulf lifted oil prices to one-month highs and kept inflation risks to the fore.

Yields on US ​Treasuries had resumed their climb after Wednesday's surprise intervention by Treasury brought barely a day of relief from selling.

The ​rise came even as US Treasury Secretary Scott Bessent said he could further increase the government's repurchases of Treasuries, and floated the idea of fiscal ‌consolidation.

Analysts were sceptical he could find enough spending cuts to seriously curb a budget deficit of more than 6 per cent of gross domestic product, with interest charges alone this year running at $1.2 trillion.

"Historically, markets have pushed back when they believe fundamentals - like record debt level and historically large deficits - are on their side, and further interventions could become too costly to bear," cautioned Steven Zeng, a strategist at Deutsche Bank.

"There is also the potential cost to Treasury's institutional credibility if its activist approach erodes some of the goodwill and benefits that have been built over the years by adhering to a regular and predictable framework," he added.

Investors showed their scepticism by nudging 30-year bond yields back up to 5.25 per cent, while the 10-year hit 4.71 per cent. Markets assume 5.30 per cent is now a pain threshold for Treasury, much like the 160.00 yen level has become for Japanese policymakers.

Higher yields lift debt costs globally, just as tech giants are borrowing heavily to fund AI capex, while raising the discount on corporate earnings and challenging stock valuations.

The strain was evident in the Nikkei which slipped 0.8 per cent, bringing losses for the week so far ‌to 4.4 per cent. South Korea and Taiwan both edged higher, but again were down on the week.

MSCI's broadest index of Asia-Pacific shares outside Japan added 0.5 per cent.

In Europe, EUROSTOXX 50 futures and DAX futures were a fraction lower, while FTSE futures dipped 0.1 per cent. On Wall Street, a bumper earnings season has provided some support with S&P 500 futures up 0.1 per cent, while Nasdaq futures gained 0.2 per cent.

The entire AI trade faces a huge hurdle next week when Nvidia reports, with much riding on its outlook for infrastructure demand and data centre revenue.

Walmart on Thursday showed what happens when high expectations are disappointed, sliding 9 per cent on a sales miss.