SHANGHAI- Asian shares and US treasury yields tumbled on Wednesday, while the yen, gold and oil shot higher after Iran fired rockets at Iraqi airbases hosting US military forces, stoking fears of a wider conflict in the Middle East.
Iran’s missile attacks on the Ain Al-Asad air base and another in Erbil, Iraq, early Wednesday came hours after the funeral of an Iranian commander whose killing in a US drone strike has intensified tensions in the region.
MSCI’s broadest index of Asia-Pacific shares outside Japan was 1 percent lower shortly after China’s share markets began trading, with China’s blue-chip CSI300 index down 0.56 percent.
Japan’s Nikkei tumbled 2.2 percent and Australian shares fell more than 1 percent. US stock futures were also sharply lower, with S&P500 e-minis off nearly 1 percent.
“It’s a very classic risk off,” said Rob Carnell, Asia-Pacific chief economist at ING in Singapore.
“This is the Iranian response to the killing of Soleimani. We now have to see what the US response to the Iranian response is. This looks as if it could escalate,” he said.
“If you see US treasuries rallying a bit this morning, expect them to rally quite a bit further should there be a forceful response from the United States, which I’d imagine there would be…from a market perspective I think this one could run and run.”
The yield on benchmark 10-year US Treasury notes last stood at 1.7534 percent, down more than 7 basis points from a US close of 1.825 percent on Tuesday, though up from session lows. US 10-year Treasury futures had earlier peaked at their highest level since November, and were last up 0.63 percent.
The two-year yield dropped to 1.4982 percent compared with a US close of 1.546 percent.
The dollar slipped against the yen, with the Japanese currency touching its strongest point against the greenback since October. The US currency was last down 0.28 percent against the yen at 108.11.
The euro was relatively unmoved on the day, rising 0.04 percent to buy $1.1155. The dollar index, which measures the greenback against six major peers, was 0.19 percent lower at 96.819. – Reuters