By Satoshi Sugiyama
TOKYO, Sept 15 (Reuters) - Bonds slumped on Tuesday, sending benchmark 10-year U.S. Treasury yields to their highest since 2007, as higher oil prices unsettled investors ahead of key central bank meetings in the U.S. and Japan.
The 10-year U.S. Treasury yields extended their gains on Tuesday, rising above 5.0210% for the first time since mid-2007 after touching 5% overnight. Japan's benchmark 10-year government bond yield climbed back above 3% to a fresh 30-year high of 3.025%.
Yemen's Iran-aligned Houthis launched a new wave of attacks on Saudi Arabia on Monday, after Riyadh blamed Iran-backed fighters in Iraq for an attack on the kingdom's east-west pipeline that it said could disrupt as much as 4% of global oil supply. Gulf Arab states also postponed planned talks with Iran.
Renewed supply concerns kept markets on edge, with U.S. crude rising 1.82% to $103.24 a barrel while Brent gained 1.6% at $107.37.
"Markets are likely to remain focused on the risk that higher crude oil prices could add to inflationary pressures and, in turn, push interest rates higher," Yokoo Akihiko, an analyst at Mitsubishi UFJ Bank, said in a note.
The Federal Open Market Committee begins its two-day meeting later in the day, with markets pricing in a 90% chance of a rate hike that would mark the Fed's first increase since mid-2023.
"While inflation continues to decelerate, recent upside surprises mean the pace of disinflation has been slower and less convincing than" the Fed likely requires, analysts at Morgan Stanley said in a report, expecting a 25 basis-point hike on Wednesday, and again in December.
Asian shares extended losses from the previous session after leading AI figures called for a slowdown in AI development. MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.8%, led by South Korea's 1.18% decline.
Taiwan shed 0.43% while Japan's Nikkei lost 0.32% after swinging between gains and losses.
U.S. President Donald Trump played down concerns over misuse of the technology, saying existing U.S. safeguards were adequate and that China would benefit from doubts over AI development.
In early European trades, the pan-region Euro Stoxx 50 futures nudged 0.06% upwards, German DAX futures dipped 0.02% and FTSE futures shed 0.21%. U.S. S&P 500 E-minis futures lost 0.22%.
The Bank of Japan is widely expected to raise its interest rate by 25 basis points to 1.25% at the end of its two-day meeting on Friday and signal more tightening ahead. Policymakers are seeking to shore up the yen after intervention helped steer the currency away from a 40-year low.
In currency markets, the dollar index, which measures the greenback against a basket of currencies, rose 0.11% to 99.60. The European single currency was down 0.1% on the day at $1.1537, while the dollar rose 0.21% against the yen to 154.68.
Gold was slightly higher. Spot gold traded at $4307.32 per ounce. [GOL/]
In cryptocurrencies, bitcoin fell 2.19% to $77,360.58. Ether declined 3.48% to $2,480.77.
(Reporting by Satoshi Sugiyama; Editing by Shri Navaratnam and Lincoln Feast.)
