Asia equities diverge as bond yields hit multi-year peaks and trade truce extends

Key points

• U.S. 10-year Treasury yield reached 5.185%, having hit a 19-year high of 5.225% earlier in the week, while the 30-year yield touched 5.50%, its highest since 2004.
• Japan’s Nikkei 225 gained 1.3% and TOPIX rose 1.4%, driven by technology sector recovery and a weaker yen, while Hong Kong’s Hang Seng fell nearly 1.5% and the Hang Seng TECH index dropped 2%.
• U.S. President Donald Trump and Chinese President Xi Jinping agreed to extend their trade truce by two months, covering tariffs, rare-earth supplies, and technology restrictions, according to Treasury Secretary Scott Bessent.
• Brent crude eased slightly after rising over 3% previously due to a Houthi missile attack on Saudi Arabia, though it remained well above pre-conflict levels, reinforcing inflation concerns.
• U.S. rate futures indicated a 70% probability of another Federal Reserve rate increase in October, up from 53% earlier in the week, reflecting persistent inflation worries.

Background

This bond market volatility follows a week of sustained yield increases, with the 10-year Treasury yield climbing for six consecutive weeks. Earlier in September, yields had already breached 5% for the first time since April 2025, driven by strong business activity data and hawkish Federal Reserve commentary. The current surge to multi-year highs has pressured global equities, though Japan’s market has bucked the trend due to technology sector strength and currency dynamics.

How outlets are covering it

Investing.com emphasizes the broad weakness in Asian equities driven by the bond selloff and the limited relief from the Trump-Xi summit, noting that the trade truce extension left strategic differences unresolved. Euronews highlights the mixed global market reaction, focusing on oil price volatility and the impact of strong U.S. economic data on bond yields, while noting that European markets opened lower. Both sources agree on the significance of rising bond yields and the hawkish Federal Reserve stance, but Investing.com places greater emphasis on the Trump-Xi summit outcome, while Euronews focuses more on oil and inflation dynamics.

Why it matters

The surge in bond yields to multi-year highs signals growing concerns about persistent inflation and potential further monetary tightening by the Federal Reserve. This has increased borrowing costs globally, pressuring equity markets and risk assets. The extension of the U.S.-China trade truce provides some stability but does not resolve deeper strategic tensions, leaving investors cautious. Rising oil prices, driven by geopolitical tensions in the Middle East, further exacerbate inflation risks, complicating the Federal Reserve’s policy path and potentially slowing global economic growth.

What to watch

Investors will closely monitor the implementation of the extended U.S.-China trade truce, particularly regarding tariffs, rare-earth supplies, and technology restrictions. The Federal Reserve’s October rate decision will be critical, with markets pricing a 70% chance of another hike. Oil prices will remain a key factor, with ongoing U.S.-Iran talks on the Strait of Hormuz potentially affecting supply. Asian markets will continue to react to global bond yields and currency movements, with Japan’s Nikkei 225 potentially benefiting from a weaker yen and tech sector strength.