Asian shares held steady Friday as a bond selloff drove US long-term yields to multi-year highs, raising borrowing costs. MSCI's Asia-Pacific index excluding Japan was flat; Japan's Nikkei rose 1%, Hong Kong fell 1% and Australia lost 0.6%.
Mainland China, Taiwan and South Korea were closed for a holiday. Inflation worries and fiscal strains fueled the bond selloff as investors demanded higher returns on long-dated debt. The 10-year Treasury yield peaked at 5.2251%, a 19-year high, after rising 20 basis points in two days; the 30-year yield reached 5.5016%, its highest since 2004. US mortgage rates hit 7%.
Fed funds futures implied a 71% chance of another US rate hike next month, up from about 53% earlier in the week, with more than 90 basis points of tightening still priced in for the cycle—almost four quarter-point hikes. Norway raised rates Thursday, while Sweden's Riksbank signalled it was likely to follow by year-end. Brent fell 0.8% to $105.75 a barrel after a 3% overnight rise; a Houthi missile attack on Saudi Arabia revived supply concerns. The US and Iran were reportedly exploring a phased path to reopen the Strait of Hormuz.
