Asian markets fall as bond volatility and Gulf tensions lift oil

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Asian markets fall on bond volatility

Highlights

MSCI's Asia-Pacific index drops 0.5% and is set for a weekly loss of 1.7% as investors await U.S. payrolls and rate signals.
Benchmark 10-year U.S. Treasury yields briefly reach 5.34%, prompting markets to price a 25% October Fed rate hike probability, down from 69% last week.
Oil prices remain elevated with U.S. crude at $92.84 and Brent above $102 after increased Gulf tensions and China's export suspension fuel supply concerns.

Markets brace for U.S. payrolls and rate signals

As reported by Reuters, Asian shares fall on Friday after another volatile session in global bond markets, with investors focusing on U.S. nonfarm payrolls due later in the day. MSCI's broadest index of Asia-Pacific shares outside Japan is down 0.5% and is on track for a weekly loss of 1.7%, while Japan's Nikkei drops 0.7% but remains set for a weekly gain of 3.1%.

Benchmark 10-year U.S. Treasury yields hit their highest level since 2002 at 5.34% overnight before easing and holding around 5.2512% in Asia. Markets are looking for a rise of 90,000 jobs in September, with the employment rate seen steady at 4.1%, while wage data is drawing particular scrutiny after a jump in prices paid in the ISM survey points to ongoing cost pressure.

Chris Weston, head of research at Pepperstone, says a strong wages reading could have an outsized effect on U.S. rates, Treasuries and the dollar as the Federal Reserve remains focused on inflation. Markets now price a 25% chance of another Fed rate increase in October, down sharply from 69% a week ago, although a December hike is still fully priced in.

Currency moves and oil strength add pressure

Fiscal concerns in France are unsettling European markets, pushing the spread between French and German sovereign yields above 140 basis points, the widest since 2012. The euro falls as low as $1.1215, its weakest level since May 2025, and also loses ground against the yen and Swiss franc, while the U.S. dollar index stands firm at 102.09 and is set for a third straight weekly gain.

In Japan, the yen trades at 158.13 per dollar after data shows underlying inflation in Tokyo accelerates to 2.7% in September, reinforcing expectations for further rate hikes. Mainland Chinese markets remain closed for a public holiday through Wednesday next week.

Oil prices stay elevated after nearly a 3% overnight jump, as reports say the U.S. is sending more troops and carriers to the Middle East and China suspends oil product exports. U.S. West Texas Intermediate crude holds at $92.84 a barrel, while Brent remains above $102, adding to concerns over tighter global fuel supplies.

Our earlier article highlighted how traders were heading into Friday with attention centered on the September U.S. nonfarm payrolls report as the key catalyst for moves in equities, rates and the dollar. It also noted that the 10-year U.S. Treasury yield pushing to its highest level since 2002, alongside firm oil prices and renewed concerns around French sovereign risk, was amplifying volatility and keeping the stock-versus-bond trade-off in focus.

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