Asian markets extend rally as traders assess US Treasuries pledge

Asian stock markets extended their rally on Friday, buoyed by the U.S. Treasury's pledge to reduce long-term bond yields. However, analysts cautioned that these measures might not be sufficient to curb a potential surge in borrowing costs.

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a housekeeping move destined to be short-term, at best

Wall Street investors remained cautious, resuming selling amid persistent concerns about elevated inflation and government borrowing. The lack of progress in reopening the Strait of Hormuz also added to market unease, with oil prices gradually increasing over the past two weeks due to the ongoing deadlock between the United States and Iran.

The U.S. Treasury announced plans to "at least double" its sovereign bond buybacks, a move intended to provide support to markets after the 30-year yield had previously surged to levels not seen since 2007. While this initially sent long-term rates plunging, they rebounded on Thursday. Mark Malek of Muriel Siebert & Co. described the buyback plan as "a housekeeping move destined to be short-term, at best."

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We think that this is a thinly traded area of the market, that we're in August, and there's been a lot of corporate issuance that's influenced the market.

Treasury Secretary Scott Bessent stated that his department possesses a "big toolkit" to address yields perceived as detached from financial conditions. These potential measures could include further bond purchases beyond the announced scale. Bessent also suggested that inflation, which has exceeded the Federal Reserve's target for over five years, would ease once the U.S. moves past the Iran conflict and oil prices decline.

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We believe that the yields don't reflect the underlying fundamentals.

Despite a downturn on Wall Street, particularly affecting tech firms reliant on debt financing, Asian markets performed better. Seoul saw gains, boosted by a rally in chipmakers Samsung and SK Hynix. Hong Kong, Singapore, Wellington, and Taipei also rose, although Tokyo, Sydney, and Shanghai experienced dips. The yen strengthened against the dollar as Japanese inflation increased, potentially allowing the country's central bank to raise interest rates next month.

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We already knew at the start of this year that governments would be looking to raise a lot of money due to increased spending commitments on both sides of the Atlantic, which would mean that buyers would likely be spoiled for choice.