Bond yields advanced alongside oil prices early Tuesday as the U.S.-Iran standoff showed no signs of thawing, stoking fears of a prolonged and widening conflict.
President Trump has threatened to bomb Oman if the country "gets in the way" of Washington's efforts to reach a peace deal with Tehran, which has adopted an increasingly hardline stance, attacking vessels attempting to transit the Strait of Hormuz without permission.
"Oil, yields and geopolitics are keeping markets on edge," OCBC strategists said.
Yields on Japan's 10-year government bonds rose as much as 2.5 basis points to 2.945%, the highest intraday level since September 1996, before recently trading 2 basis points higher at 2.940%.
"Government bond markets traded poorly overnight, with yields higher in key markets in response to the rally in oil prices," said Sally Auld, group chief economist at National Australia Bank, in commentary. Auld noted yield increases on U.S. Treasurys and European government bonds on Monday.
The 30-year U.S. Treasury yield closed at 5.310%, its highest in nearly 20 years.
Yields on Australia's 10-year sovereign debt were 3 basis points higher at 5.0390% and on New Zealand's 10-year government bonds were up 3 basis points at 4.7430%.
Oil prices also maintained their upward ascent, with front-month Brent crude oil futures up 0.4% at $91.26 a barrel and front-month WTI crude oil futures 0.6% higher at $85.02 a barrel.
"Crude prices are rising on renewed geopolitical tensions triggered by President Trump threatening Oman with military strikes and communicating that he is in no rush to end the Iran war," said José Torres, senior economist at Interactive Brokers. "A fresh burst of violence in Lebanon is worrying market participants about the potential for an intense escalation of Middle East hostilities," Torres added.
Meanwhile, Asian equity markets were broadly lower. Japan's Nikkei Stock Average was down 1.6%, Hong Kong's Hang Seng Index was 0.7% lower and Taiwan's Taiex fell 0.9%. South Korea's Kospi edged down by 0.2%.
AI and technology stocks led the declines in Hong Kong, with Z.AI dropping 15%, Minimax sliding 13%, and Tencent down 1.7%.
Spot gold was 0.5% lower at $4,394.54 an ounce.