Asian shares slide as bond volatility, geopolitical tensions roil markets ahead of US jobs data

The trading day in Asia opened Friday into a market seized by uncertainty. Stock indexes across the region were sliding as investors braced for data that could reshape expectations about American interest rates and the global economy. The real turbulence, though, was happening in the bond markets, where the benchmark ten-year US Treasury yield had climbed to 5.34 percent overnight—the highest level since 2002—before pulling back to settle around 5.25 percent by the time Asian markets were trading. That quarterly surge in yields was the steepest in three decades, a violent repricing that left currency traders scrambling and stock investors unsure where to plant their money.

The bond rout had a geography to it. In Europe, French government bonds were selling off sharply as investors fretted over the country's fiscal position, pushing the gap between French and German bond yields to 140 basis points—the widest spread since 2012. That widening sent tremors through European equities and hammered the euro, which fell to $1.1215, its lowest point since May 2025. The single currency also weakened against the yen and Swiss franc. These weren't small moves. The dollar index, measuring the currency against six major peers, climbed to its highest level since April 2025, up 0.6 percent overnight and on track for a third consecutive week of gains.

Across Asia, the damage was visible but uneven. The broadest measure of Asia-Pacific shares outside Japan dropped 0.5 percent and was tracking toward a weekly loss of 1.7 percent. Japan's Nikkei fell 0.7 percent on the day, though it was still positioned for a weekly gain of 3.1 percent. Mainland Chinese markets remained closed for a public holiday that would extend through the following Wednesday. On Wall Street, where the bond retreat had offered some relief, Nasdaq futures rose 0.3 percent and S&P 500 futures inched up 0.1 percent.

The immediate trigger for the day's moves was the anticipation of the US nonfarm payrolls report, due later Friday. Economists were forecasting a gain of 90,000 jobs in September, with the unemployment rate expected to hold steady at 4.1 percent. But the real focus was on wage growth. An earlier ISM survey had shown a sharp jump in prices paid by manufacturers, signaling that cost pressures remained embedded in the economy. If the jobs report showed strong wage gains, it could convince the Federal Reserve that inflation was still a problem worth fighting, even as some officials had recently suggested the central bank should pause and gather more data before making its next move.

The Fed's own messaging had shifted the odds. Markets were pricing in only a 25 percent probability that the Fed would raise rates again in October, down sharply from 69 percent a week earlier after two senior policymakers had made unusually explicit statements about wanting more information before acting. A December rate increase, though, was still fully priced in. Chris Weston, head of research at Pepperstone, captured the tension: with the Fed now focused intently on inflation and price pressures, a strong wages number could prove decisive for Treasury yields and the dollar. He also flagged a deeper concern—that while risk assets had absorbed the rise in real yields reasonably well so far, a sustained increase in the term premium, the extra compensation investors demand for holding longer-dated bonds, could become far more destabilizing.

The bond market's internal structure was shifting. Comments from Fed officials that leaned dovish had driven a rally in two-year Treasuries overnight, with the yield curve steepening as short-end yields fell. The two-year yield was up just 1 basis point at 4.8039 percent after dropping 10 basis points in the previous session. The ten-year, having fallen 6 basis points overnight from its 24-year high of 5.3445 percent, was up 2 basis points to 5.2575 percent—a sign that some buyers were finally stepping back in after the brutal selling.

Europe's bond troubles may have accelerated safe-haven flows back into US Treasuries, the dollar, and the Swiss franc. French yields had hit 14-year highs, a stark reminder that fiscal concerns in major economies could ripple through global markets. The yen, meanwhile, was trading at 158.13 per dollar after data showed that underlying inflation in Tokyo had accelerated to 2.7 percent annually in September, a figure that strengthened the case for the Bank of Japan to raise rates further.

Oil markets remained elevated. US West Texas Intermediate crude futures were steady at $92.84 a barrel after jumping nearly 3 percent overnight, while Brent crude held above $102 a barrel. The strength reflected reports that the United States was deploying additional troops and aircraft carriers to the Middle East, along with China's decision to suspend oil product exports—a move that raised the specter of global fuel shortages tightening further. The combination of geopolitical tension and supply constraints kept energy prices firm as investors waited to see what the jobs report would reveal about the American economy's momentum and the Fed's next move.