Fed Rate-Hike Bets Sink Global Bonds as 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 three basis points to 4.78%, the highest level since January 2025. Japan’s 10-year yield rose five basis points to a three-decade high of 2.99%, while its Australian counterpart hit the highest level since 2011.

The yield on a Bloomberg gauge of global government debt advanced for a fourth straight 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 74%, 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 0.8% to about $91.20 a barrel amid renewed fighting in the Middle East. The US and Iran exchanged strikes for the first time in about a month as American forces hit an island in the Strait of Hormuz and the Islamic Republic responded by launching attacks on the United Arab Emirates and Jordan.

While bond yields and oil are rising, there was little spillover into the broader equity market. MSCI’s Asia Pacific equities gauge edged 0.3% higher, led by Taiwanese shares. MediaTek Inc. shares jumped 9.9% in Taipei trading after Nvidia Corp. said it’s investing $3.5 billion in the chipmaker.

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-10fixed-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.

Elsewhere, Shein Global Holdings Ltd. shares fell as much as 10% in Hong Kong after raising HK$13.6 billion ($1.7 billion) in an initial public offering.

Traders are also closely monitoring the yen as the currency traded near 160 versus the dollar, raising the risk that authorities may enter the market again to slow its decline. The yen has unwound more than half the gains it made during a record bout of intervention that began in late July.

Separately, US Treasury Secretary Scott Bessent told Japanese Finance Minister Satsuki Katayama and Bank of Japan Governor Kazuo Ueda that further interest-rate hikes were needed, NHK reported, citing an interview with a US official.

Bonds remained in focus. Not since 2006 have yields on the longest-maturity Treasuries been this high 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.

“With traders tracking geopolitical volatility as well as potential seasonal volatility, it will be interesting to see which market impulse from last week might carry over to this week,” said Chris Larkin at E*Trade from Morgan Stanley. “Unexpectedly strong labor-market data might be taken as bad news by the market, since it could reinforce expectations for a rate hike.”

Some of the main moves in markets:

Stocks

S&P 500 futures were little changed as of 12:59 p.m. Tokyo time Japan’s Topix rose 0.6% Australia’s S&P/ASX 200 fell 0.4% Hong Kong’s Hang Seng fell 1% The Shanghai Composite was little changed Euro Stoxx 50 futures fell 0.2% Currencies

The Bloomberg Dollar Spot Index was little changed The euro fell 0.1% to $1.1606 The Japanese yen was little changed at 159.81 per dollar The offshore yuan was little changed at 6.7207 per dollar Cryptocurrencies

Bitcoin fell 0.2% to $78,664.03 Ether was little changed at $2,471.76 Bonds

The yield on 10-year Treasuries advanced three basis points to 4.78% Japan’s 10-year yield advanced five basis points to 2.990% Australia’s 10-year yield advanced nine basis points to 5.18% Commodities

West Texas Intermediate crude rose 1.1% to $86.73 a barrel Spot gold was little changed This story was produced with the assistance of Bloomberg Automation.

–With assistance from Abhishek Vishnoi.

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