Asian bond yields extended gains Friday even as oil pulled back, signaling continued caution about inflation and higher interest rates as the Middle East conflict drags on.

The selloff in U.S. government bonds again spilled over into Asian debt markets as Treasury yields hit highs not seen since 2007.

The bond rout has renewed fears that tighter financial conditions could ultimately slow economic activity, said analysts at BMI, a unit of Fitch Solutions

While higher rates don't automatically translate into a credit crunch, BMI said sustained increases in funding costs can lead banks to become more selective in extending credit to households and firms, squeezing the spending and investment that accounts for a substantial chunk of developed economies' gross domestic product.

Japanese government bond yields rose to multidecade highs early Friday, with the 2-year yield last up 2.9 basis points at 1.936%. The 10-year yield was lower but remained above 3%.

The rise in the 10-year JGB yield is concerning but not overly worrying for Japan's public debt sustainability, as higher funding costs will take many years to feed into outstanding debt, said Marcel Thieliant, head of Asia-Pacific at Capital Economics.

New Zealand's 10-year yield was up 3.9 basis points at 5.120%.

"Higher bond yields shouldn't be seen in isolation as they will also lift returns on the government's large holdings of financial assets," Thieliant said.

Asian bond yields are likely to keep rising to peak around the first to second quarter of 2027, ANZ Research said in a note. Still, Asia local-currency bonds have proven resilient, rising less than U.S. Treasury yields since the Middle East conflict escalation.

"Strong export growth, improving external balances and continued investor demand for diversification have limited the transmission of the global bond selloff," ANZ wrote.

The resurgence of energy prices due to re-escalation in the Middle East has been a key factor in the global yield surge, fueling expectations for more aggressive central bank tightening.

Oil futures fell during Asian trading hours on Friday but remained at elevated levels.

Front-month West Texas Intermediate futures fell 2.0% to $92.69 a barrel, while front-month Brent dropped 1.2% but remained above $105 a barrel, ICE data showed.

Given the history of failed negotiations between Washington and Tehran, market participants remain cautious, OCBC strategists said.

"We've been here before and significant hurdles remain, with neither side willing to give up its leverage easily," they said.

Regional equities were mixed, with many markets closed for holidays.

Hong Kong's Hang Seng Index was 1.3% lower, while Japan's Nikkei Stock Average rose 1.3% and India's Sensex gained 0.2%. South Korea, Taiwan and China were closed.

The high-profile summit between Chinese leader Xi Jinping and President Trump did little to lift the market mood, yielding no meaningful outcomes, as had been widely expected.

The two sides agreed to a modest two-month extension to the existing trade detente, but that still leaves "issues over tariffs, agricultural purchases, rare earths, and technology restrictions unresolved," said Lloyd Chan, senior currency analyst at MUFG.

Both spot gold and silver last traded 0.1% lower.

The extension of the trade truce "reinforces that de-escalation signal, potentially reducing part of the safe-haven premium that elevated trade uncertainty can generate for gold," said Naeem Aslam, chief investment officer at Zaye Capital Markets.