Bonds slump as US 10-year Treasury yields hit highest since 2007 

Bonds slumped on Tuesday, sending benchmark 10-year US Treasury yields to their highest since 2007, as higher oil prices unsettled investors ahead of key central bank meetings in the US and Japan.

The 10-year US Treasury yields extended their gains on Tuesday, rising above 5.0210 percent for the first time since mid-2007 after touching 5 percent overnight. Japan's benchmark 10-year government bond yield climbed back above 3 percent to a fresh 30-year high of 3.025 percent.

Yemen's Iran-aligned Houthis launched a new wave of attacks on Saudi Arabia on Monday, after Riyadh blamed Iran-backed fighters in Iraq for an attack on the kingdom's east-west pipeline that it said could disrupt as much as 4 percent of global oil supply. Gulf Arab states also postponed planned talks with Iran.

Renewed supply concerns kept markets on edge, with US crude rising 1.82 percent to US$103.24 a barrel while Brent gained 1.6 percent at US$107.37.

"Markets are likely to remain focused on the risk that higher crude oil prices could add to inflationary pressures and, in turn, push interest rates higher," Yokoo Akihiko, an analyst at Mitsubishi UFJ Bank, said in a note.

The Federal Open Market Committee begins its two-day meeting later in the day, with markets pricing in a 90 percent chance of a rate hike that would mark the Fed's first increase since mid-2023.

"While inflation continues to decelerate, recent upside surprises mean the pace of disinflation has been slower and less convincing than" the Fed likely requires, analysts at Morgan Stanley said in a report, expecting a 25 basis-point hike on Wednesday, and again in December.

Asian shares extended losses from the previous session after leading AI figures called for a slowdown in AI development. MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.8 percent, led by South Korea's 1.18 percent decline.

Taiwan shed 0.43 percent while Japan's Nikkei lost 0.32 percent after swinging between gains and losses.

US President Donald Trump played down concerns over misuse of the technology, saying existing US safeguards were adequate and that China would benefit from doubts over AI development.

In early European trades, the pan-region Euro Stoxx 50 futures nudged 0.06 percent upwards, German DAX futures dipped 0.02 percent and FTSE futures shed 0.21 percent. US S&P 500 futures lost 0.22 percent.

The Bank of Japan is widely expected to raise its interest rate by 25 basis points to 1.25 percent at the end of its two-day meeting on Friday and signal more tightening ahead. Policymakers are seeking to shore up the yen after intervention helped steer the currency away from a 40-year low.

In currency markets, the dollar index which measures the greenback against a basket of currencies, rose 0.11 percent to 99.60. The European single currency was down 0.1 percent on the day at US$1.1537, while the dollar rose 0.21 percent against the yen to 154.68.

Gold was slightly higher. Spot gold traded at US$4307.32 per ounce. 

In cryptocurrencies, bitcoin fell 2.19 percent to US$77,360.58. Ether declined 3.48 percent to US$2,480.77.

Reuters

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