Asian Markets Head for Weekly Losses as Bond Yields, Oil Prices Stay Elevated

Most Asian share indices were on track for weekly losses on Friday, as persistent stress in global bond markets and elevated oil prices kept investors cautious. The downbeat mood came despite a brief reprieve in the Treasury market following a surprise intervention earlier in the week.

Yields on U.S. Treasuries resumed their upward climb after a short-lived period of relief. Treasury Secretary Scott Bessent's comments about potentially increasing government repurchases of Treasuries and pursuing fiscal consolidation did little to soothe investor concerns. Analysts remain skeptical that sufficient spending cuts can be found to meaningfully address a budget deficit exceeding 6% of GDP, with interest costs alone projected at $1.2 trillion this year.

"Historically, markets have pushed back when they believe fundamentals are on their side, and further interventions could become too costly to bear," noted one strategist. The skepticism pushed 30-year bond yields back up to 5.25%, while the 10-year yield reached 4.71%. Markets now view 5.30% as a potential pain threshold for the Treasury.

Higher yields increase debt costs globally, particularly for tech giants borrowing heavily to fund AI capital expenditure, while also raising the discount on corporate earnings. The strain was evident in Japan's Nikkei, which slipped 0.8%, bringing its weekly loss to 4.4%. South Korea and Taiwan edged higher on the day but remained down for the week. MSCI's broadest index of Asia-Pacific shares outside Japan added 0.5%.

In Europe, futures pointed to a slightly softer open, while Wall Street saw modest gains in S&P 500 and Nasdaq futures. The AI trade faces a major test next week when Nvidia reports earnings, with much riding on its outlook for infrastructure demand. Walmart's 9% slide on a sales miss highlighted the risks of high expectations.

Oil prices remained near one-month highs after the U.S. pledged "the toughest sanctions in history" against Iran, dimming hopes for a deal to fully open the Strait of Hormuz. Brent futures were last off 0.7% at $93.12 a barrel, still up more than 5% for the week, while U.S. crude eased to $86.18.

The dollar nursed broad weekly losses amid worries that growing U.S. debt and policy uncertainty will erode the currency's purchasing power. Gold held steady at $4,513 an ounce, having climbed 3.1% for the week. The dollar index was down almost 0.9% for the week at 98.802, while the euro touched a 14-week peak. The dollar held firmer against the yen at 159.07, with data showing Japan's core consumer inflation accelerated in July, adding to the case for a September rate hike from the Bank of Japan.