(Bloomberg) -- Traders are bracing for US House Speaker Nancy Pelosi’s expected arrival in Taipei Tuesday to raise tensions with China, with stocks sliding and global havens the yen and Treasuries climbing.

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Taiwan’s benchmark stock index fell as much as 2.1%, Hong Kong and Chinese shares slumped, while the Japanese currency touched a two-month high. Ten-year Treasury yields dropped for a fifth day and approached 2.5%, a level last seen in April. The Taiwan dollar hit its lowest since May 2020.

Pelosi’s trip is creating a fresh pressure point for investors already dealing with the prospects of a US recession, worldwide rate hikes and surging inflation. Tuesday’s moves suggest traders are hedging against tension escalating, with analysts warning of the tailrisk of a conflict between the world’s two largest economies that wreaks havoc on global markets.

“Some economic response against Taiwan is inevitable, otherwise the loss of face for China after all the threats would be unbearable,” said Alvin Tan, head of Asia currency strategy at RBC Capital Markets in Singapore. “Risk appetite will remain cautious, with the greatest anxiety focused on Greater China markets, but beyond that, we would need to see the specific reaction from China.”

China regards Taiwan as part of its territory and has promised “grave consequences” for what would be the highest-ranking US official to set foot on the island in 25 years. Taiwan is a critical supplier of semiconductors and other high-tech goods.

Some are warning the consequences could ripple. The concern is that the trip and China’s reaction to it worsens the longer-term relationship on trade, and plays out in markets over weeks or more, with implications for Treasuries, according to BMO Capital Markets strategists Ian Lyngen and Benjamin Jeffery. Yields on the 10-year benchmark may well breach 2.5% this week, they wrote in a report.