Stocks slumped in Asian trading on Wednesday as a bond market-induced selloff on global markets spilled over into the region, after renewed attacks by the US on Iran pushed oil prices higher.
MSCI's broadest index of Asia-Pacific shares outside Japan tumbled 1.5 per cent as South Korea's KOSPI dropped more than 3 per cent, while the Nikkei 225 was down 2.6 per cent. S&P 500 e-mini futures EScv1 were down 0.1 per cent.
Brent crude futures extended gains into a second day as trading resumed in Asia, rising 1.3 per cent to $95.91 a barrel after the US launched a barrage of airstrikes on Iran on Tuesday, which earlier pushed oil prices to a five-week high.
"The threat of further disruptions to the Strait of Hormuz has brought about renewed anxiety over inflation, driving a selloff in stocks across most major markets and a rout in global bond markets," Westpac analysts wrote.
The yield on the US 10-year Treasury bond hit an intraday high of 4.8122 per cent, its highest level in almost three years, while the yield on the 5-year Japanese government bond rose to 2.295 per cent, its highest level on record.
"September kicked off on a shaky note as developed market government bonds continued to sell off," DBS analysts wrote.
"Brace for a volatile month ahead as high yields cause angst across the asset classes," they added. "If the bond rout does not get stemmed, policymakers would probably have to resort to more aggressive measures to cap yields."
The kiwi dollar was down 0.6 per cent at $0.5855 after the Reserve Bank of New Zealand hiked interest rates by 25 basis points to 2.75 per cent, as expected by markets, though dovish language in the central bank's statement weighed on the currency.
The US dollar index =USD, which measures the greenback's strength against a basket of six currencies, was up 0.1 per cent at 99.79, its highest since Aug 17.
Overnight on Wall Street, the S&P 500 slipped 0.7 per cent and the Nasdaq Composite fell 1 per cent as a surge in government bond yields weighed on equities.
The declines came as data from the Institute for Supply Management released on Tuesday showed US manufacturing activity moderated in August amid a slowdown in new orders, but remained in expansionary territory.
Traders believe that the Federal Reserve is likely to lift interest rates at its next meeting in two weeks, though a hike is not certain.
Fed funds futures are pricing an implied 67 per cent probability of a 25-basis-point increase to benchmark borrowing costs at the US central bank's two-day meeting ending on September 16, compared with a 39.6 per cent chance a week ago, according to the CME Group's FedWatch tool.
Gold was down 0.8 per cent at $4,295.70 an ounce, while bitcoin slipped 0.6 per cent to $76,979.55 and ether was 0.9 per cent lower at $2,397.78.
