Asian equities were mostly lower Tuesday as investors responded to losses on Wall Street and continued concerns over higher borrowing costs. U.S. futures also edged down, keeping risk sentiment subdued as markets assessed the impact of elevated Treasury yields and rising energy prices.

On Monday, the S&P 500 declined 0.8%, while the Dow Jones Industrial Average fell 0.7% and the Nasdaq Composite lost 0.9%. The weakness came as investors continued to demand greater returns from U.S. government debt amid concerns about inflation and the growing U.S. fiscal burden.

Treasury Yields Stay Near Multi-Year Highs

The 10-year U.S. Treasury yield reached approximately 5.27% Monday, its highest level since 2007. By early Tuesday, the yield had eased to around 5.25%, compared with roughly 5.17% at the end of last week.

Higher yields can increase the relative attractiveness of fixed-income assets while raising financing costs for companies and consumers. For equity markets, the move creates an additional valuation challenge, particularly when investors are simultaneously dealing with uncertainty over inflation and economic growth.

Central Banks Remain Focused on Inflation

Monetary policy is adding another layer to the market backdrop. Australia’s central bank raised its benchmark interest rate Tuesday in its fourth increase of the year, bringing borrowing costs to their highest level in 15 years.

The Federal Reserve also raised rates earlier this month, while the Bank of Japan increased its policy rate to its highest level in 31 years, according to the source. The broader shift toward tighter monetary conditions reflects continued efforts by central banks to contain inflation, but it also creates a more challenging environment for risk assets.

Oil Prices Reintroduce an Inflation Risk

Energy markets are becoming increasingly important for investors. Brent crude rose 1.8% to $99.63 a barrel, significantly above its level of about $72 before the Iran war. The increase came as mediators continued efforts to reach an agreement between the United States and Iran.

Uncertainty over the Strait of Hormuz remains particularly important because of its role in global oil transportation. The source reports that President Donald Trump rejected an offer from Tehran over reopening the waterway, leaving markets to assess the possibility of continued disruption.

Persistent oil-price strength could complicate the inflation outlook by increasing transportation and production costs. If energy prices remain elevated, investors may also reassess expectations for how quickly central banks can eventually ease monetary policy.

Regional Markets Show Mixed Signals

Japan’s Nikkei 225 fell 1.2% to 65,114.64, while South Korea’s Kospi declined 0.6% to 6,847.56. Hong Kong’s Hang Seng dropped 0.5% to 24,516.46. Hong Kong-listed shares of Shein fell 11.7% after the online retailer reported a 67% year-over-year decline in adjusted net profit for the latest quarter.

China’s Shanghai Composite, however, edged up 0.1% to 3,826.51 following a report that China’s State Council discussed improving the effectiveness of macroeconomic policies. Australia’s S&P/ASX 200 also gained 0.1%, while Taiwan’s Taiex declined 0.6% and India’s Sensex fell 0.7%.

Currency Markets Reflect Shifting Risk Sentiment

Currency movements remained relatively contained. The U.S. dollar traded at 157.42 Japanese yen, compared with 157.39 previously, while the euro slipped to $1.1362 from $1.1371.

The combination of elevated Treasury yields, higher oil prices and geopolitical uncertainty leaves Asian markets facing several competing forces. Investors will likely continue watching energy prices, U.S. bond yields, central-bank policy and developments around the Strait of Hormuz as they assess whether the current pressure on regional equities is temporary or could persist.