Global Bond Market Rout Drives Yields to Multi-Decade Highs, Fuels Volatility
Market Overview and Key Developments
By Jamie McGeever
ORLANDO, Florida, Sept 24 (Reuters) - The global bond rout continued on Thursday, pushing many key yields around the world to new multi-decade highs. Stock markets around the world felt the heat, although the S&P 500 and Nasdaq staged late rallies to end flat, while oil and the dollar marched higher.
In my column today, I look at the dollar's resurgence and soaring bond yields in the context of the US Treasury's recent forays into the FX and bond markets. Right now, "the house" — as Treasury Secretary Scott Bessent referred to himself recently — is not winning.
Today's Key Reads
- Trump says he'll discuss AI with Xi but wants to 'leave it exactly where it is'
- US, China agree to extend trade truce by two months, work on bigger deal, Bessent says
- Global bond selloff deepens, as US 30-year yields hit highest since 2004
- US weekly jobless claims near 57-year lows; price reductions boost new home sales
- ECB's Schnabel quits to join IMF, setting in motion a board reshuffle
Today's Key Market Moves
Stocks, Sectors, and Shares
STOCKS: MSCI Asia ex-Japan -0.9%, Europe -0.6%, Wall Street mixed: S&P 500 and Nasdaq flat, Dow -0.3% and a 3-month low.
SECTORS/SHARES: Seven sectors on the S&P 500 fall, four rise. Utilities, materials -1%. Comms services +2%. Walmart, IBM -2.5%. Disney +2%. Oracle and Blue Owl both down ~3.5%.
FX and Bonds
FX: Dollar hits two-month high, dollar/yen flirts with 159.00. Colombian peso -2%. Norwegian, Swedish crowns steady after rate decisions.
BONDS: French, German yields highest since 2007-08, US 30y yield highest since 2004. US 7y auction weak.
Commodities and Metals
COMMODITIES/METALS: Oil up ~3%, gold slips ~1%.
Today's Talking Points
No, Mr Bond, I Expect You to Die
The global bond selloff got ugly this week. The rise in yields on Wednesday — ostensibly for "good" reasons of strong business activity data — was exceptional, and pointed to a more worrying breakdown in sentiment. There was little relief on Thursday. Yields are at multi-decade highs in the US, Europe and Japan, but this isn't drawing in buyers en masse. Bond market volatility is now surging too, another reason many investors might sit it out a bit longer.
Demand at yesterday's 5-year US bond auction was the lowest in nine years, and the premium demanded by buyers who did show up was one of the highest ever. Today's 7-year auction was also extremely weak. As BofA analysts put it, "the price action likely highlights that investors are not yet comfortable owning bonds in the environment of a Fed restarting the hiking cycle, continued conflict in the Middle East, and a resilient US economy and consumer."
An Unbridgeable US-China Gap
Huge fanfare, pomp, and ceremony, but not much substance when it comes to the big issues of the day. Is that a harsh but fair assessment of how the Trump-Xi summit will pan out? True, the US-China trade truce could be extended for another two months to January, and the two sides will agree to further dialogue on AI. But from a market and investment perspective, that's about it.
One ironic market curiosity: it is perhaps fitting that on the day Trump and Xi tried to bridge divides and close gaps between the two superpowers, the spread between the two countries' bond yields widened to a record 350 basis points. US borrowing costs are soaring in the face of high inflation, while China’s are sliding as the threat of deflation continues to stalk the economy. Neither side is "winning" on that front.
Data Center Blues
Oracle on Thursday declared "force majeure" on a massive AI data center project, seeking to protect itself from soaring costs from potential delays in securing power for the "Project Jupiter" venture in New Mexico. Oracle's credit rating sits one notch above junk, and its total debt stands at around $140 billion. Shares fell to a seven-week low on Thursday.
But this goes well beyond Oracle. The industry-wide AI capex spend runs into the trillions of dollars, and is increasingly being financed by debt, leasing and other off-balance sheet structures. Many investors were already nervous about the vast cost of building the data centers needed to power the artificial intelligence revolution. This potentially pours fuel on these flames.
What Could Move Markets Tomorrow?
Upcoming Events and Data Releases
- Chinese President Xi Jinping visits US President Donald Trump in Washington
- Bank of England Governor Andrew Bailey speaks
- US University of Michigan inflation expectations, consumer sentiment (September, final)
- US durable goods (August)
- US Federal Reserve officials scheduled to speak include New York Fed President John Williams, Kansas City Fed President Jeffrey Schmid, Cleveland Fed President Beth Hammack
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(Reporting by Jamie McGeever; Editing by Nia Williams)
