- Heavy selling in German bunds triggers a global rout; Asian equities buoyed by delayed US tariffs on Mexico and Canada
A global bond selloff accelerated in Asia on Thursday, driving Japanese benchmark yields to their highest levels in over a decade. The rout, triggered by heavy selling in German bunds, rippled across international fixed-income markets, underscoring investor concerns over rising inflation, central bank policy shifts, and geopolitical uncertainty.
While Asian equity markets found support from a US tariff delay on Mexican and Canadian imports, government bond yields surged worldwide, reflecting expectations of higher-for-longer interest rates and increased government spending.
Japan’s 10-Year Yield Hits 1.5%
Japan’s 10-year government bond yield climbed to 1.5%, marking its highest level since June 2009. The sharp rise comes as the country grapples with inflationary pressures and higher borrowing costs, forcing the Bank of Japan (BOJ) to navigate a challenging policy environment.
Meanwhile, US Treasury yields climbed for a third consecutive session, with the 10-year yield reaching approximately 4.3%. Yields on Australian and New Zealand bonds followed suit, each rising around 10 basis points.
The bond rout was sparked by a sharp decline in German bunds on Wednesday, when Germany’s 10-year bund yield spiked by as much as 31 basis points, the largest single-day jump since 1990.
According to Citi strategists, led by Jamie Searle, the selloff is reminiscent of ECB President Mario Draghi’s 2012 pledge to do “whatever it takes” to save the euro. However, this time, the phrase is seen as a warning rather than reassurance, reflecting the impact of Germany’s aggressive spending plans.
Germany’s Spending Plan Fuels Market Jitters
The selloff was exacerbated by Germany’s historic plan to ramp up military spending, as Chancellor-in-waiting Friedrich Merz vowed that Berlin would do “whatever it takes” to defend itself against security threats, particularly from Russia.
This aggressive fiscal stance has raised concerns over borrowing requirements, prompting traders to scale back expectations of rate cuts by the European Central Bank (ECB). The market now anticipates the ECB may adopt a more cautious approach in its upcoming policy decisions.
The euro rallied strongly ahead of the ECB’s policy meeting, registering its best three-day performance since 2015.
Asian Equities Rally on Tariff Delay, Chinese Growth Targets
While the bond selloff weighed on global sentiment, Asian equity markets found support from two key developments:
- US tariff delays on Mexico and Canada – The White House announced a one-month delay on planned auto tariffs, following talks between President Donald Trump and Canadian Prime Minister Justin Trudeau. This move eased investor concerns over potential disruptions to North American trade.
- China’s 2025 growth targets – The National People’s Congress (NPC) reaffirmed an economic expansion target of 5%, marking the third consecutive year that Beijing has maintained this goal. President Xi Jinping signaled a commitment to ambitious growth plans, despite ongoing trade tensions.
Stock Market Reaction
- Japan’s Topix rose 1.3%
- South Korea’s Kospi gained 0.9%
- Hong Kong’s Hang Seng surged 2.6%, led by a 3.1% gain in the Hang Seng China Enterprises Index
- Shanghai Composite rose 1.1%
- Australia’s S&P/ASX 200 bucked the trend, falling 0.5%
According to Morgan Stanley strategist Laura Wang, China’s focus on technology innovation and domestic consumption is expected to sustain market momentum, offering relief to investors.
Tech Stocks Under Pressure as AI Optimism Cools
While global equities showed mixed performance, US tech stocks struggled, weighed down by disappointing forecasts from key semiconductor companies.
- Marvell Technology Inc. shares fell after-hours in New York following an underwhelming revenue forecast.
- Broadcom Inc. dropped 3.5%, as investors tempered expectations of AI-driven growth ahead of its earnings report on Thursday.
- Nasdaq 100 futures edged down 0.1% as a result.
Currency and Commodity Markets React
The foreign exchange market reflected ongoing volatility:
- The US dollar index remained steady, following a 1% decline on Wednesday.
- The euro hovered around $1.0799, maintaining its rally.
- The Japanese yen fell 0.3% to 149.27 per dollar.
- The offshore yuan climbed 0.3% to 7.2437 per dollar.
In cryptocurrency markets, Bitcoin rose 1.9% to $92,056.53, while Ether gained 2.4% to $2,289.81, as investors sought alternatives amid traditional market uncertainty.
Meanwhile, commodities saw mixed movements:
- West Texas Intermediate (WTI) crude edged up 0.7% to $66.77 per barrel, recovering from its lowest close in six months.
- Gold remained steady near record highs, signaling continued demand for safe-haven assets.
Investors are closely monitoring upcoming central bank decisions and economic data releases:
Thursday:
- European Central Bank (ECB) rate decision – Analysts expect a quarter-point rate cut.
- Turkey’s central bank policy meeting – Expected to address rising inflation concerns.
- US initial jobless claims – A key indicator ahead of Friday’s jobs report.
- US Treasury Secretary Scott Bessent speech.
Friday:
- Eurozone GDP release – Providing insights into the region’s economic growth.
- US jobs report – A crucial gauge for Federal Reserve policy direction.
- Federal Reserve Chair Jerome Powell’s keynote speech at the University of Chicago Booth School of Business.
- Additional Fed speakers, including John Williams, Michelle Bowman, and Adriana Kugler.
The global bond selloff underscores growing concerns over inflation, central bank policies, and geopolitical uncertainty. While Asian stocks found support from tariff relief and China’s growth plans, the broader financial landscape remains volatile, with investors bracing for more market turbulence.
As the ECB and Fed prepare to issue policy decisions, traders will be watching closely for signs of a shift in monetary policy. Meanwhile, rising government spending in Europe and the ongoing AI stock correction could continue to shape market sentiment in the coming weeks.
With key economic data and central bank speeches on the horizon, investors remain on edge, navigating an increasingly uncertain global financial landscape.
