Global Bond Rout Accelerates Amid Rising Yields and Soaring Oil Prices
Market Overview and Key Developments
By Jamie McGeever
ORLANDO, Florida, Sept 1 (Reuters) - The global bond rout accelerated on Tuesday, with Japanese yields scaling key levels not breached for over 30 years, as investors bet that policymakers around the world will have to raise interest rates to counter sticky inflation and lax fiscal policy. Another solid rise in oil prices, fueled by the ongoing U.S.-Israeli war on Iran, also weighed on bonds and stocks.
Recommended Reading
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
1. US urges hands-off approach to AI regulation at G20 tech meeting
2. Japan faces day of policy reckoning as Bessent calls time on big stimulus
3. Anthropic signs $35 billion cloud deal with Nvidia-backed Lambda, source says
4. Cook hands Apple to Ternus: bigger and richer, but catching up in AI race
5. Shein makes lacklustre Hong Kong debut as investors fret about growth and regulatory risks
Today's Key Market Moves
Stocks and Sectors
• STOCKS: Asia narrowly mixed, Europe slips to 1-month low, UK -0.3%. Major U.S. indices fall: S&P 500 -0.7%, Dow -0.8%, Nasdaq -1%.
• SECTORS/SHARES: In Hong Kong, Shein ends flat in debut. Seven sectors on the S&P 500 fall, four rise. Consumer discretionaries -2%, energy +1.5%. Dell -7% in market hours, but +8% after the bell on record results.
Currency and Bond Markets
• FX: Dollar gains broadly, yen falls through 160.00/$, lowest since US-Japan intervention over a month ago.
• BONDS: JGB yields at 30-year and record highs across the curve. 10-year UK gilt yield highest since 2008, 30-year highest since 1998. French, German yields at multi-year highs. U.S. 10-year yield hits 4.80%, highest since January 2025. Two-year yield also highest since January 2025.
Commodities and Metals
• COMMODITIES/METALS: Oil jumps 5%, gold -3%.
Today's Talking Points
Badly Shaken, and Stirred
The global bond selloff is snowballing. Oil prices and supply-shock inflation are factors, and in the case of the U.S., AI-driven investment, borrowing and growth may also be playing a part. But the root of it is growing concern that the fiscal outlook for the G7 and other nations is becoming untenable.
Despite calls from G20 officials for countries to grow their way out of the debt problem, investors are increasingly skeptical this is a viable plan. Interest rates are higher than growth rates, and debt servicing is eating up more of governments' budgets. Japan's budget proposals are causing particular consternation with bond investors, the UK can't shake off its "moron premium", and politics are weighing heavily on French OATs.
A Lower Barr
Fed Governor Michael Barr on Tuesday added his voice to the growing chorus among his fellow policymakers that interest rates may have to be raised. This is potentially significant. Barr is considered a centrist on the FOMC, so his assertion that the Fed will have to act "decisively" if inflation doesn't moderate in itself points to a hardening position.
More importantly, he's referring specifically to the September 15 to 16 meeting. Essentially, if the incoming CPI (and perhaps PPI) data before then aren't on the soft side, he is indicating he will vote for a hike. Add that to the three dissents from July, and maybe one or two other officials who have leaned more hawkish recently, and it is a very close call. Traders are betting on a hike — 66% probability vs 34% on hold, according to Fed Funds futures.
Factory Whirl
Despite rising energy prices, the ongoing U.S.-Israeli war on Iran, and growing concern around inflation, interest rates, and fiscal policy, the world's factories are, on aggregate, doing just fine, thank you very much. Surging demand for AI hardware boosted activity in Asia last month, and new orders in Europe bounced higher. Indeed, the euro zone's manufacturing sector grew at its fastest rate in more than four years in August, PMI data on Tuesday showed.
There are weaker spots — Italian factory activity shrank for the first time since January, and Spain contracted too, while U.S. manufacturing growth cooled amid a slowdown in new orders over worries about higher prices. Still, it's an impressive performance against such a high wall of worry. It does make you wonder, what would an end to the war, a reversal in oil prices and a sprinkling of fiscal restraint do to business and investor sentiment?
What Could Move Markets Tomorrow?
Upcoming Events
- New Zealand interest rate decision
- Australia GDP (Q2)
- Canada interest rate decision
- U.S. ADP private sector payrolls (August)
- Broadcom reports earnings
Stay Informed
Want to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here. Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(Reporting by Jamie McGeever;)
