Asian equities remained relatively steady Friday despite another sharp move higher in global bond yields. The selloff in longer-dated government debt is raising financing costs across economies and creating a tougher environment for stocks carrying elevated valuations.

MSCI’s broadest Asia-Pacific index excluding Japan was little changed. Japan’s Nikkei gained 1%, while Australia’s resources-heavy benchmark declined 0.6%. Hong Kong’s Hang Seng fell 1%.

Several major markets, including mainland China, Taiwan and South Korea, were closed for a holiday.

The resilience in Asian equities comes as investors assess whether rising bond yields can remain contained to fixed income or eventually translate into broader pressure on risk assets.

U.S. Treasury Yields Reach New Highs

The benchmark 10-year Treasury yield rose 1 basis point to 5.1915% after jumping 20 basis points over two sessions. It had reached 5.2251%, marking its highest level in 19 years and the largest two-day increase since April last year.

The 30-year Treasury yield added 2 basis points to 5.4805%, after reaching 5.5016%, its highest level since 2004.

Higher long-term yields are also filtering into consumer borrowing costs. U.S. mortgage rates have reached 7%, adding pressure to the housing market as financing becomes increasingly expensive.

The move is significant for global investors because U.S. Treasury yields form a key reference point for pricing assets ranging from equities and property to emerging-market debt.

Asian Bond Markets Follow the Global Selloff

The pressure has not been limited to U.S. government debt. Japan’s 10-year government bond yield increased 4 basis points to 3.115%, its highest level since 1996.

Australia’s 10-year government bond yield also rose 4 basis points to 5.408%.

The synchronized increase illustrates how inflation concerns and fiscal pressures are influencing government bond markets across major economies.

As yields rise, investors face a higher opportunity cost when holding riskier assets, potentially making highly valued equities and other long-duration investments more sensitive to changes in interest rates.

Rate-Hike Expectations Continue to Build

Fed funds futures now indicate a 71% probability of another Federal Reserve rate increase next month, up from roughly 53% earlier in the week. Markets are also pricing more than 90 basis points of additional tightening over the current cycle.

The two-year Treasury yield remained near 4.90% after increasing 16 basis points during the week, keeping the short end of the curve under pressure.

The renewed U.S. tightening cycle is also influencing monetary policy abroad. Norway’s central bank raised rates, while Sweden’s central bank signaled that it could follow with a move before year-end. Mexico’s central bank maintained its policy rate but removed previous language pointing toward an extended pause.

Oil Adds Another Inflation Risk

Energy markets are adding another complication for central banks. Brent crude fell 0.8% to $105.75 a barrel after gaining 3% overnight following a Houthi missile attack on Saudi Arabia that revived concerns about potential supply disruptions.

Oil remaining above $100 a barrel keeps inflation risks elevated at a time when central banks are already responding to stronger price pressures.

At the same time, markets are holding onto hopes for a possible phased agreement between the United States and Iran that could eventually allow the Strait of Hormuz to reopen. Any progress could reduce some of the immediate supply-risk premium in crude.

The Dollar Remains Firm

The combination of higher Treasury yields and expectations for additional Federal Reserve tightening has supported the U.S. dollar.

The dollar index has gained about 1% this week to 101.25 against major currencies, approaching its highest level since late July.

A stronger dollar can add another layer of pressure for emerging markets by increasing the local-currency cost of dollar-denominated debt and commodities.

What Investors May Watch Next

The interaction between bond yields, oil prices and monetary policy will remain central to the market outlook.

If Treasury yields continue climbing above 5%, investors may reassess valuations across global equities and other risk assets. At the same time, sustained oil prices above $100 could complicate efforts by central banks to contain inflation.

Markets will also watch the next developments around the Strait of Hormuz and U.S.-Iran discussions. A reduction in geopolitical supply risks could ease oil prices, while further disruption could reinforce inflation and rate-hike concerns.

For Asian equities, the ability to absorb higher global borrowing costs without a deeper repricing will be an important test as the latest bond-market shock continues to work through the global financial system.