Cocktail of Risks Boosts Demand for Safest Bonds: Markets Wrap

(Bloomberg) — Risks spanning credit markets, elevated commodity prices and French political turmoil boosted demand for safer government bonds, snapping a prolonged decline fueled by persistent inflation concerns.

Sovereign debt rose in Japan, Australia and New Zealand as investors sought haven assets, while Treasuries held the bulk of their gains from Thursday’s rally. A Bloomberg gauge of the dollar headed for a third weekly gain, the longest winning run since January 2025.

European bonds, though, remained under pressure as concerns around France’s fiscal and political situation pushed euro-area risk premiums higher. French bond futures held near an all-time low, while their German equivalents climbed for a fourth day, and longer-maturity UK gilt yields briefly climbed above 6%.

Pressure has been building elsewhere as well. Asian shares were set for their worst week since July and European stocks their worst since April. Global oil benchmark Brent held above $102 a barrel after a two-day gain. Iron ore futures fell for a 10th day in Singapore — potentially the longest losing run in more than a decade — and copper was poised for its biggest weekly loss since May.

Risks have been building across markets as elevated inflation concerns keep pressure on bonds, leaving the path for energy prices and any escalation between Washington and Tehran crucial to the outlook. That raises the stakes for Friday’s US jobs report, which may offer clues on how much scope the Federal Reserve has to take a more measured approach to further tightening.

“With markets mostly driven by geopolitical risk and monetary policy uncertainty, the tone this Friday will be dictated by any fresh headlines about the war or US nonfarm payrolls data,” Kyle Rodda, a senior analyst at Capital.com, wrote in a note. “After solid private payrolls and jobless claims numbers this week, the ultimate question is whether the labor market remains little impediment to future rate rises.”

Economists estimate the US jobs report due Friday will show nonfarm payrolls rose 90,000 in September after climbing by 162,000 in the prior month, the most since March. The unemployment rate is seen remaining at a one-year low of 4.1%.

In other corners of the market, while Asian shares dropped 0.5%, sentiment in equities steadied as US stock-index futures edged up. Earlier, Wall Street benchmarks eked out a small gain Thursday in volatile trading.

Hong Kong shares fell the most since March as they reopened after a holiday. HSBC Holdings Plc dropped almost 5.5%, tracking moves in global peers amid investor concerns over higher yields and potential UK tax hikes targeting the banking sector.

Meanwhile, global credit markets started showing signs of caution, as investors pull back following record borrowings and growing concerns about balance sheets as inflation persists.

Spreads on global corporate bonds have blown out about five basis points this week, the most since March. That leaves them at their widest in half a year, according to a Bloomberg index. Trading at the start of the global day in Asia on Friday pointed toward more selling, with yield premiums on investment-grade notes increasing two to four basis points, traders said.

Bonds remained in focus as the risk premium in euro-area government bonds shot up on Thursday, a sign that concerns around France’s fiscal and political situation are starting to spill over into other markets.

The spread between Italy and Germany’s two-year yields almost doubled to 55 basis points on Thursday, the biggest daily jump since 2020 on a closing basis. The equivalent gap for France rose as much as 22 basis points, the most since 2012.

“France is emerging as an epicenter of global bond market stress,” Evercore ISI analysts including Krishna Guha, wrote in a note. “We see growing signs of disorderly conditions.”

Corporate Highlights:

Nike Inc. said it’s consolidating its operations and cutting jobs while warning that its sales slump is poised to deepen. Anthropic PBC is seeking to go public as soon as the middle of November, according to people familiar with the matter. Broadcom Inc.’s Wall Street syndicate is starting to gather $60 billion of fresh AI chip financing to benefit Anthropic PBC and other companies, according to people with knowledge of the matter. Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.3% as of 6:50 a.m. London time Nasdaq 100 futures rose 0.4% The MSCI Asia Pacific Index fell 0.5% The MSCI Emerging Markets Index fell 0.3% Japan’s Topix fell 0.8% Australia’s S&P/ASX 200 rose 0.8% Hong Kong’s Hang Seng fell 2.7% Euro Stoxx 50 futures rose 0.1% Currencies

The Bloomberg Dollar Spot Index fell 0.1% The euro was little changed at $1.1249 The Japanese yen rose 0.2% to 157.82 per dollar The offshore yuan rose 0.1% to 6.7062 per dollar The British pound was little changed at $1.3209 Cryptocurrencies

Bitcoin rose 1.7% to $86,063.6 Ether rose 0.8% to $2,719.29 Bonds

The yield on 10-year Treasuries advanced two basis points to 5.26% Japan’s 10-year yield was unchanged at 3.100% Australia’s 10-year yield declined four basis points to 5.36% Commodities

Spot gold rose 0.1% to $4,183.54 an ounce West Texas Intermediate crude fell 0.3% to $92.55 a barrel This story was produced with the assistance of Bloomberg Automation.

–With assistance from David Finnerty and Katherine Doherty.

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