Asian shares retreated on Friday as wild swings in bond yields and currencies rattled investors ahead of key United States employment data. At the same time, a widening military buildup in the Gulf kept oil prices elevated, prompting traders to reevaluate risk across global markets.
US Treasury Yields and French Fiscal Worries Drive Bond Market Volatility
Bond markets remained the epicenter of global financial turbulence as benchmark 10-year US Treasury yields hit 5.34%, marking their highest level since 2002 after capping the biggest quarterly rise in 32 years. Those yields later retreated to steady near 5.2512% in Asian trading. The 10-year Treasury yield rose 2 basis points to 5.2575%, easing from a 24-year high of 5.3445% as a brutal sell-off tempted buyers back into the market.
Dovish comments from Federal Reserve officials sparked a significant rally in 2-year Treasuries overnight. The 2-year yield was last up 1 basis point at 4.8039% after tumbling 10 basis points overnight, causing the yield curve to bull steepen as short-end yields fell.
Across the Atlantic, fiscal worries in France pushed the spread between French and German sovereign bond yields above 140 basis points, reaching its widest level since 2012. This European bond rout drove French yields to 14-year highs, rattling regional stocks and triggering safe-haven flows back toward US Treasuries, the US dollar, and the Swiss franc.
Currencies Slide Under Pressure as the Dollar Strengthens and the Euro Drops
The surging dollar and European debt pressures exerted heavy pressure on foreign exchange markets. The US dollar index, which measures the greenback against six major peers including the euro and the Swiss franc, held firm at 102.09 after rallying 0.6% overnight to touch its highest level since April 2025. The index is on track for a third straight week of gains, up 1.1%.
The euro absorbed the brunt of the European debt fallout. The single currency slid as far as $1.1215, marking its lowest point since May 2025, before trading weaker at $1.1235 after an overnight drop of 0.8%. The euro also tumbled against the Japanese yen and the Swiss franc, losing 0.8% and 1% respectively.
Meanwhile, the Japanese yen traded at 158.13 per dollar following data showing that underlying inflation in Tokyo accelerated to an annual rate of 2.7% in September, reinforcing expectations for further interest rate hikes from the central bank.
Asian Equities Fall While Wall Street Futures Stage a Late Rebound
Regional stock markets reacted sharply to the cross-market volatility. MSCI’ broadest index of Asia-Pacific shares outside Japan dropped 0.5%, putting it on pace for a weekly decline of 1.7%. Japan’s Nikkei fell 0.7% though it remained headed for a weekly gain of 3.1%. Mainland Chinese markets remained closed for a public holiday extending through Wednesday of the following week.
In the United States, a late rebound on Wall Street helped stabilize futures contracts following the pullback in Treasury yields. Nasdaq futures rose 0.3% and S&P 500 futures edged up 0.1%.
Traders Await US Nonfarm Payrolls and Hourly Earnings Data
Market participants turned their full attention to the US nonfarm payrolls report scheduled for release later in the day. Economic forecasts center on a gain of 90,000 jobs for September, with the employment rate expected to hold steady at 4.1%.
Special focus will land on hourly earnings figures, particularly after an Institute for Supply Management survey revealed a sharp jump in prices paid, signaling mounting cost pressures across the economy.
“With the Fed now myopically focused on inflation and price pressures, a hot wages print could prove particularly influential for US rates, Treasuries and the USD.”
Chris Weston, head of research at Pepperstone
Weston added context regarding market resilience, noting that risk assets have so far absorbed the rise in US real yields, and long-end nominal Treasury yields remarkably well
while cautioning that however, a sustained increase in term premium could be far more problematic.
Current market pricing reflects a 25% probability that the Federal Reserve will raise interest rates again in October, down sharply from 69% just a week prior. That shift followed remarks from two top policymakers who made a case for evaluating more incoming data before deciding the next move for monetary policy, though a December rate hike remains fully priced in by traders.
Military Buildup in the Gulf and Export Suspensions Keep Oil Prices Firm
Energy markets remained elevated amid geopolitical tensions and supply restrictions. Reports indicated that the United States was dispatching additional troops and carriers to the Middle East, while China suspended exports of oil products, heightening anxieties over potential global fuel shortages.
US West Texas Intermediate crude futures held steady at $92.84 a barrel after posting an overnight gain of nearly 3%. The contract for Brent crude futures rolled, but they held above $102 a barrel.