Bond yields jump, oil extends gains as US-Iran ceasefire expires

By Gregor Stuart Hunter

SINGAPORE, Aug 18 (Reuters) – Bond yields climbed on Tuesday to their highest in decades, with oil prices rising for a third day, while stocks gave up early gains in Asian trade as a U.S.-Iran truce expired and Tehran threatened to adopt a “fully offensive” military posture.

The yield on the U.S. 30-year Treasury bond rose as much as 1.1 basis points to an intraday high of 5.321%, its highest in almost 20 years. Its 10-year counterpart traded up 0.4 basis point at 4.724%.

“Typically, moves above 4.65% for the U.S. 10-year have been followed by some soothing words from the Trump administration, typically centred on an imminent resolution to the war with Iran,” ING analysts wrote in a note.

“This time, we’re not hearing the same,” they added. “In fact, the latest indications are for no imminent resolution as the shaky 60-day truce came to an end.”

S&P 500 e-mini futures slumped 0.2% as MSCI’s broadest index of Asia-Pacific shares outside Japan slid 0.3%, reversing early gains as stocks in Taiwan and China weighed on the benchmark.

South Korea’s KOSPI erased an early gain of more than 3% as the Seoul market returned after a holiday to trade flat, while the Nikkei 225 fell 1.6%.

Brent crude futures edged up 0.4% to $91.20 a barrel as a rally in oil prices extended into a third consecutive day in Asian trade.

“The big focus in global macro is the increase and stickiness in longer-end developed market yields, and in particular a relentless sell-off in U.S. Treasuries,” MUFG analysts wrote in a research report.

As the recent global selloff in bonds deepened, the yield on the 10-year Japanese government bond rose 2 basis points to 2.94%, a three-decade high.

Overnight on Wall Street, the S&P 500 slipped 0.5% while the Nasdaq Composite edged 0.3% lower as soft U.S. economic data, including an unexpected drop in retail sales, led traders to reduce bets on an imminent Fed interest rate move.

“Markets adopted a generally risk-off tone as President Trump reaffirmed he was not interested in extending the truce with Iran,” Westpac analysts wrote in a research note.

The U.S. dollar index, a measures of the greenback’s strength against a basket of six currencies, was up 0.1% at 99.60, pulling back from a two-month low.

Gold was down 0.3% at $4,402.89, snapping a two-day winning streak.

In cryptocurrencies, bitcoin and ether were both down 0.3% at $64,159.76 and $1,899.34 respectively.

(Reporting by Gregor Stuart Hunter; Editing by Sonali Paul and Clarence Fernandez)