Asian Markets Bracing for Further Losses as Oil Prices Soar

The Asian markets are bracing for further losses on Friday as oil prices continue to fuel inflation concerns. The elevated price of oil has pushed long-term Treasury yields to multi-decade highs, raising the prospect of more Federal Reserve rate hikes.

The bond selloff deepened on Thursday, with the 30-year Treasury yield reaching its highest level since 2004 and the benchmark 10-year yield increasing by eight basis points to 5.20%. Despite an expanded Treasury buyback operation, investors were disappointed, leading to losses in New Zealand government bonds and Australian debt futures.

US oil prices edged lower on Friday after Brent crude settled near $107 a barrel, having briefly pared gains on reports that the US and Iran are exploring a phased deal to reopen the Strait of Hormuz. The dollar extended its advance, while gold fell.

Equity-index futures for Australia and Hong Kong pointed lower, setting up a regional index for its third day of losses. In contrast, contracts for Japanese stocks were little changed, while South Korea is shut for a holiday. US share futures slipped 0.1% early in Asian trading after the S&P 500 and Nasdaq 100 ended a choppy session little changed.

Investors are closely monitoring oil and bond yields as persistent inflation pressures reinforce expectations for further Fed tightening and weigh on equities. Swaps fully price three quarter-point hikes over the next year, with strategists warning that higher rates will eventually hit labor and consumers if the Fed gets aggressive.