Fed Rate-Hike Bets Sink Global Bonds, Oil Gains: Markets Wrap

(Bloomberg) — Global bonds fell, pushing yields to multi-decade highs, as concern over quicker inflation boosted bets on a Federal Reserve interest-rate hike this month. Oil climbed as geopolitical tensions flared.

The Treasury 10-year yield climbed two basis points to 4.77%, the highest level since January 2025. Japan’s 10-year yield touched 3% for the first time since 1996, while its Australian counterpart hit the highest level since 2011. European bonds were also set for a weaker open.

The yield on a Bloomberg gauge of global government debt advanced for a fourth day on Monday, rising to 3.72%, the highest since mid-2008. Bond yields climbed as traders boosted the odds of a September Fed rate hike to 65%, according to data compiled by Bloomberg based on swaps. The pricing was just 34% the day before Fed Chair Kevin Warsh spoke about reining in inflation at Jackson Hole on Friday.

Brent crude advanced as much as 1.2% to about $91.55 a barrel, before paring gains, on renewed fighting in the Middle East.

While bond yields and oil are rising, there was little spillover into the broader equity market. MSCI’s Asia Pacific equities gauge rose 0.6%, led by Taiwan. European shares were set for a modest decline at the open, while US equity-index futures edged up 0.1%.

Investors are demanding greater compensation to hold bonds after years of heavy government spending, persistent inflation and a surge in corporate borrowing to finance the artificial-intelligence buildout. Warsh’s tough stance on price pressures has put added focus on this week’s US payrolls report for its potential impact on the interest-rate outlook.

“Investors are beginning to reassess what neutral policy rates look like and there has been a gradual increase in those,” Idanna Appio, a portfolio manager and senior research analyst at First Eagle Investments, said on Bloomberg Television.

“You have just a demand-supply mismatch in the fixed-income market,” she said. “Just a lot of supply coming out of US corporate sector and much more expected associated with the hyperscalers.”

What Bloomberg Strategists Say…

“G-10 fixed-income traders are paying closer attention to JGBs, with Australian bonds increasingly taking their cue from Japanese debt as much as from Treasuries. The near-term backdrop is toxic: sticky inflation combined with wide fiscal deficits across the US, Japan, the UK and France.”

— Mark Cranfield, Markets Live strategist. Click here for the full analysis.

September is shaping up to be an unusually busy month for central bank meetings with interest-rate swap markets currently pricing hike probabilities above 50% for major central banks.

Swaps have fully priced in a hike by the European Central Bank at its Sept. 10 meeting, and a 54% probability of an increase by the Reserve Bank of Australia on Sept. 29. Markets are pricing in 92% chance for the Bank of Japan to increase rates on Sept. 18 and a 98% chance for the Reserve Bank of New Zealand this week.

“With the policy paths of the world’s major central banks all set to be revealed within the same month, this creates a dense pricing window for rates and FX markets,” Dilin Wu, a strategist at Pepperstone Group Ltd., wrote in a note. “Should central banks broadly move toward tightening, that could weigh on non-yielding gold and high-valuation risk assets.”

Not since 2006 have yields on the longest-maturity Treasuries been above 5% for this long, with a gaping budget deficit, another wave of corporate issuance and a potentially decisive Fed meeting expected to keep investors wary in coming weeks.

The yield on the 30-year bond hit 5.34% in mid-August, its most elevated since 2007 and just 10 basis points away from the highest level in 22 years. As of Monday, the yield has settled above 5% on 55 days since the start of January, the most closes above that mark in any year since 2006, data compiled by Bloomberg show. The yield was at 5.27% on Tuesday.

“Rising global yields, elevated oil and a firm US dollar are preventing a broader risk recovery,” Wee Khoon Chong, Asia Pacific macro strategist at BNY, wrote in a note.

Corporate News:

MediaTek Inc. shares jumped 9.9% in Taipei trading after Nvidia Corp. said it’s investing $3.5 billion in the chipmaker. Shein Global Holdings Ltd. slumped as much as 10% in its Hong Kong debut. Some of the main moves in markets:

Stocks

S&P 500 futures were little changed as of 6:50 a.m. London time Nasdaq 100 futures were little changed The MSCI Asia Pacific Index rose 0.6% Japan’s Topix rose 0.8% Australia’s S&P/ASX 200 fell 0.1% Hong Kong’s Hang Seng fell 0.9% The Shanghai Composite rose 0.1% Euro Stoxx 50 futures fell 0.1% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1610 The Japanese yen was little changed at 159.85 per dollar The offshore yuan was little changed at 6.7203 per dollar The British pound was unchanged at $1.3549 Cryptocurrencies

Bitcoin rose 0.3% to $79,116.62 Ether rose 0.4% to $2,482.42 Bonds

The yield on 10-year Treasuries advanced three basis points to 4.78% Japan’s 10-year yield advanced 5.5 basis points to 2.995% Australia’s 10-year yield advanced nine basis points to 5.18% Commodities

Spot gold rose 0.1% to $4,443.85 an ounce West Texas Intermediate crude rose 0.7% to $86.32 a barrel This story was produced with the assistance of Bloomberg Automation.

–With assistance from Abhishek Vishnoi and John Cheng.

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