As a result of the reported shelling in Ukraine, Asian markets have retreated and bond yields have fallen.

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Asian financial markets fell on Thursday as Russian media reported that rebels in eastern Ukraine accused Kyiv government forces of deploying mortars to attack their territory.

Equities futures in the United States and Europe also sank, as traders sought safety in government bonds, while oil recovered some of its early losses.

On Thursday, Russian-backed separatists in eastern Ukraine accused government forces of opening fire on their territory four times in the previous 24 hours, saying they were investigating whether anyone had been injured or killed.

The allegation comes as Russia has gathered around 100,000 troops along Ukraine’s borders, stoking fears of an invasion.

Details indicating the incident occurred within the contested area of Donbass, according to Westpac analyst Sean Callow, alleviated initial fears of a cross-border flare-up.

“But markets are obviously on edge,” he said, “and susceptible since many traders had hoped the tension would dissipate.”
“The price fluctuation indicates that this is the market’s weak side,” he adds.
The 10-year U.S. Treasury note yield fell 7 basis points (bps) to 1.967 percent, while the 2-year note yield fell 4.7 bps to 1.4798 percent.

The MSCI Asia-Pacific Index (.MIAP00000PUS) fell 0.09 percent, reversing morning gains, while Japan’s Nikkei (NI225) fell 0.77 percent.

The Hang Seng Index (HSI) fell 0.37 percent as investors withdrew from Hong Kong stocks.

MSCI’s comparable regional index excluding Japan (.MIAPJ0000PUS) climbed 0.02 percent, led by Chinese and Korean companies.

Higher metals prices overshadowed geopolitical concerns, boosting Chinese blue chips (399300) and Australia’s benchmark (.AXJO) by 0.36 percent. The Kospi (KOSPI) in South Korea increased by 1.21 percent.

The S&P 500 futures (ES1!) fell 0.43 percent, while the FTSE Index futures (FFIc1) down 0.29 percent in the United States and Europe.

Crude oil recovered some of its losses after falling more than 2�rlier on hopes that discussions may save Iran’s 2015 nuclear accord and deliver additional supply to a tight market.

By the afternoon, West Texas Intermediate (WTI) crude (CL1!) in the United States was down $1.59 to $92.07 per barrel, while Brent (BRN1!) was down $1.63 to $93.18 per barrel.

“The risk is that Russia-Ukraine concerns become entrenched, if not normalised,” Mizuho analysts wrote in a research note..

At the same time, fears of a super-hawkish Fed rate-tightening campaign, possibly including a 50-basis-point boost next month, eased overnight after minutes from the most recent policy meeting showed a more cautious, data-dependent approach from central bank officials.

A weaker dollar and lower rates, combined with low risk sentiment, kept gold (XAU=) near an eight-month high of $1873.57. It was last trading at roughly $1,868 per ounce.

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