Bond yields rise, 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 and stocks under pressure 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 1.6 basis points to an intraday high of 5.326%, its highest in almost 20 years. Its 10-year counterpart traded up 1.8 basis points at 4.7399%.

"This matters considerably if the move continues," raising the hurdle rate for stocks, tightening financial conditions and putting pressure on leveraged companies and governments, said Charu Chanana, chief investment strategist at Saxo Bank in Singapore. "Asia is already showing some of that spillover."

S&P 500 e-mini futures lost 0.4% as MSCI's broadest index of Asia-Pacific shares outside Japan slid 0.8%, reversing early gains as stocks in South Korea, 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 tumble 2.1%, while the Nikkei 225 fell 2.2%.

Brent crude futures edged up 0.4% to $91.26 a barrel as a rally in oil prices extended into a third consecutive day in Asian trade.

As the recent global selloff in bonds deepened, the yield on the 10-year Japanese government bond rose 1.5 basis points at 2.935%, a three-decade high.

"This feels more like a buyers' strike than a sellers' panic," said Masahiko Loo, senior fixed income strategist at State Street Investment Management in Tokyo, referring to the bond market pressure.

"Markets are rediscovering term premium in a world where fiscal deficits, heavier bond supply and AI-driven capital spending are all competing for capital at the same time."

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.

Some analysts questioned why the move in bond yields had not led to a climbdown on the Iran war from the U.S. president.

"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." 

The U.S. dollar index, which measures the greenback's strength against a basket of six currencies, was up 0.1% at 99.65, pulling back from a two-month low.

Gold was down 0.6% at $4,389.44, snapping two days of gains.

In cryptocurrencies, bitcoin was down 0.3% at $64,150.36, while ether was down 0.6% at $1,893.16.

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