The global bond rout deepened in Asia on Thursday, with Japan’s benchmark yields reaching their highest levels in more than a decade following heavy selling in German bunds. Meanwhile, Asian stocks found support as the U.S. announced a temporary delay in tariffs on Mexico and Canada.
Japan’s 10-year government bond yield hit 1.5% for the first time since June 2009, as the country grapples with inflation and rising borrowing costs. U.S. Treasuries also declined, pushing the 10-year yield higher for a third consecutive day to around 4.3%. In Australia and New Zealand, yields surged by roughly 10 basis points, reflecting the broader market turmoil.
The selloff underscores the growing impact of geopolitical uncertainty on financial markets, with investors adjusting to shifting U.S. trade policies, fraying Western support for Ukraine, and inflationary pressures. Adding to market anxiety, Germany’s anticipated surge in government spending—championed by incoming Chancellor Friedrich Merz—has further unsettled bond investors. Merz’s pledge that Germany would do “whatever it takes” to strengthen its defense has stoked concerns over the scale of future borrowing.
“The last time the bond market reacted to a ‘whatever it takes’ pledge, it was a relief,” Citi strategists led by Jamie Searle wrote, referencing European Central Bank President Mario Draghi’s famous 2012 statement to save the euro. This time, however, they warned it serves as a “warning to bond valuations.”
The selloff was triggered by a sharp decline in German bonds, which drove the 10-year bund yield up 30 basis points on Wednesday—the steepest jump since 1990. The euro strengthened to levels not seen since November in response.
Stock markets in Asia presented a mixed picture, with gains in Japan and South Korea, while Chinese equities fluctuated. On Wall Street, the S&P 500 closed 1.1% higher on Wednesday, while the Nasdaq 100 climbed 1.4%. U.S.-listed Chinese stocks saw a strong rebound, rising 6.4%—the largest gain in three months.
However, U.S. equity futures dipped as technology stocks came under pressure. Shares of Marvell Technology Inc. declined in after-hours trading following a weaker-than-expected revenue forecast, disappointing investors banking on artificial intelligence-driven growth. Broadcom Inc., another semiconductor giant tied to the AI boom, also fell 3.5% ahead of its earnings report on Thursday.
In a notable trade policy shift, the White House announced a one-month delay on auto tariffs affecting Mexico and Canada. White House press secretary Karoline Leavitt stated that, following discussions with Canadian Prime Minister Justin Trudeau, President Donald Trump is open to considering further tariff exemptions.
“Tariff relief in the form of a concrete deal would be the best-case scenario for equities,” said Kevin Brocks, director at 22V Research. However, he cautioned that “prolonged uncertainty remains an economic headwind.”
Currency markets saw the dollar stabilize after falling 1% on Wednesday. The greenback weakened against most major currencies, with the euro leading gains. Meanwhile, the yen appreciated 0.6%, hovering just below 149 per dollar.
Investors are also eyeing key economic data from Asia, including unemployment figures from the Philippines, inflation data from Vietnam, and an interest rate decision from Malaysia. In China, the government reaffirmed its annual economic growth target of around 5% for 2025—the first time in more than a decade that Beijing has set the same goal for three consecutive years. President Xi Jinping signaled his administration’s commitment to pursuing ambitious expansion despite ongoing trade tensions with the U.S.
Later on Thursday, the European Central Bank and Turkey’s central bank are set to announce their latest interest rate decisions.
In the U.S., investors are watching initial jobless claims ahead of Friday’s closely watched payrolls report. Options markets suggest the S&P 500 could see a 1.3% move in either direction—the largest implied shift for any jobs report since the regional banking crisis in March 2023.
Elsewhere, oil prices held near six-month lows, while gold remained steady near its record high.
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