As short-term yields surged, Asian share got a cautious start on Monday amid talk of more sanctions against Russia over its invasion of Ukraine, while bond continued to sound the risk of a hard landing for the U.S. economy.
A holiday on China made for sluggish trading, and MSCI's broadest index of Asia-Pacific shares outside Japan fell by 0.1%.
Japan's Nikkei was flat, while S&P 500 stock futures fell 0.2% and Nasdaq futures 0.3%.
While Russia-Ukraine peace talks dragged on, reports of Russian atrocities led Germany to say that the West would impose more sanctions in the coming days.
Germany's defence minister said the European Union must consider banning Russian gas, a move that would likely send prices higher while forcing energy rationing in Europe.
The data out last week showed that the EU had already surged to a record high and put pressure on the European Central Bank to control runaway prices even as growth slows.
It looks like it is time for the ECB to act, according to analysts at ANZ. While the European Central Bank will be cautious about raising rates, it looks like it should act sooner to abolish its QE programme. The U.S. Federal Reserve is seen doing a lot more after Friday's solid March payrolls report. There are plenty of Fed officials who are due to speak at public events this week, with the possibility of more hawkish noises. Minutes of the last policy meeting are due on Wednesday.
The Fed is expected to hike by 50 bps in May, June and July before dialling the pace back a bit by 25 bps at September, November and December, said Kevin Cummins, chief U.S. economist at NatWest This will bring the funds rate into restrictive territory by the end of 2022, with 2.50 -- 2.75% in May, June and July. The market priced in the risk that all this tightening would lead to a recession and investors reacted by hammering short-dated Treasuries and further inverting the yield curve.
On Monday, two-year yields were up at 2.49% and well above the 10 year highs of 2.410%, three-year highs were up at three-year highs of 2.49%.
The Bank of Japan acted repeatedly last week to keep its bond yields near zero, which has underpinned the U.S. dollar, especially against the yen.
The dollar was trading at 122.63 yen, which was not far from its recent seven-year peak of 125.10. The euro fell to a $1.1041 level and could fall further if the EU actually acts to stop gas flows from Russia. The dollar index was last at 98.617, having recently bounced around between 97.681 and 99.377.
The rise in bond yields globally has resulted in a drag on gold, which pays no return, and the metal was stuck at $1,923 an ounce. GOL Meanwhile, oil prices fell after the United Arab Emirates and the Iran-aligned Houthi group welcomed a truce that would stop military operations on the Saudi-Yemeni border, alleviating concerns about potential supply issues. O R Oil slid 13% last week - the biggest weekly fall in two years - after U.S. President Joe Biden announced the largest-ever U.S. oil reserves release.