Introduction: Bond market slide deepens after strong US data
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Trouble is brewing in the bond markets again, as investors grow more concerned about inflation, and signs that the US economy may be running too hot.
Government borrowing costs jumped yesterday, and are rising again in Asia-Pacific markets this morning, a move that is pulling down share prices.
Yesterday’s trigger was a surprisingly strong survey of US businesses – as we covered yesterday – showing that activity was rising at the fastest pace in five years, amid a surge in costs.
This prompted a sell-off in US government bonds, as traders calculated that this might prompt further rises in US interest rates to cool inflation.
Chris Weston, head of research at brokerage Pepperstone, says:
double quotation markWith unemployment at 4.1% and growth running above trend, the US economy is showing signs of modest overheating. The Federal Reserve will therefore be firmly on notice.
If the next inflation readings continue to print hot, policymakers may conclude that aggregate demand needs to be brought lower through the blunt tool of higher interest rates.
Investors were also alarmed by a surprisingly weak auction of US five-year bonds last night, which attracted low demand – perhaps a sign that appetite for Treasury bonds is waning…
Cue the sell-off! With bond prices sliding, the yield (or rate of return) on five-year US Treasuries was driven over 5% for the first time since 2007. 10-year US Treasury yields surged over 5%, in their biggest one-day move since Donald Trump’s ‘Liberation Day’ tariff announcement almost 18 months ago.
These moves are rattling the wider global bond market (as US debt is the ‘risk-free’ asset used as a benchmark by global financial markets).
Already today, yields on Japan’s benchmark bonds have hit their highest level in decades.
Ipek Ozkardeskaya, senior analyst at Swissquote, explains why markets were rattled:
double quotation markIn the US, flash PMI figures for September showed activity expanding at the fastest pace in more than five years. New orders grew at the fastest pace since April 2022, while manufacturing hiring was the strongest since February 2021.
Massive AI investment and resilient consumer spending outweighed energy-price-led worries, though supplier delivery times stretched, according to the same data, while input costs remained elevated due to high energy prices and supply-chain pressures.
In other words, economic activity expanded strongly while price pressures remained elevated. That’s the perfect combination for fuelling further rate-hike expectations.
The agenda
-
11am BST: CBI distributive trades survey of UK retailers
-
8.30am BST: Swiss National Bank’s interest rate decision
-
1.30pm BST: US jobless claims data
-
3pm BST: Bank of England’s Clare Lombardelli speech on “Macroeconomic Policy in a Heterogeneous and Imperfectly Rational World”
Share
Key events
Japan’s government bond yields have climbed to multi-decade highs today, as the sell-off continues.
Bloomberg has the details:
double quotation markThe 10-year yield rose 10 basis points to 3.075% on Thursday, its highest since 1996, after the three-day break. The five-and 20-year rates also gained about 10 basis points each to 2.375% and 3.915%, respectively.
Share
More US interest rate hikes are being priced in
Financial markets are now much more confident that the US Federal Reserve will raise interest rates rates at least one more time this year.
According to CME Fedwatch, there’s now a 55% chance that US rates are half a percentage point higher by the end of December – implying two quarter-point rate rises (or one beefy hike!). That’s on top of the Fed’s hike earlier this month.
Jim Reid, market strategist at Deutsche Bank, says:
double quotation markThe main story is still the huge global bond selloff, with yesterday seeing the biggest jump in the 10yr Treasury yield (+15.2bps) since the market turmoil around Liberation Day in April 2025.
The main driver was a strong batch of PMIs, along with a rebound in oil prices, which both led to mounting speculation about faster rate hikes. Indeed, futures this morning are pricing a 71% chance of a Fed rate hike at the next meeting in October.
Share
Introduction: Bond market slide deepens after strong US data
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Trouble is brewing in the bond markets again, as investors grow more concerned about inflation, and signs that the US economy may be running too hot.
Government borrowing costs jumped yesterday, and are rising again in Asia-Pacific markets this morning, a move that is pulling down share prices.
Yesterday’s trigger was a surprisingly strong survey of US businesses – as we covered yesterday – showing that activity was rising at the fastest pace in five years, amid a surge in costs.
This prompted a sell-off in US government bonds, as traders calculated that this might prompt further rises in US interest rates to cool inflation.
Chris Weston, head of research at brokerage Pepperstone, says:
double quotation markWith unemployment at 4.1% and growth running above trend, the US economy is showing signs of modest overheating. The Federal Reserve will therefore be firmly on notice.
If the next inflation readings continue to print hot, policymakers may conclude that aggregate demand needs to be brought lower through the blunt tool of higher interest rates.
Investors were also alarmed by a surprisingly weak auction of US five-year bonds last night, which attracted low demand – perhaps a sign that appetite for Treasury bonds is waning…
Cue the sell-off! With bond prices sliding, the yield (or rate of return) on five-year US Treasuries was driven over 5% for the first time since 2007. 10-year US Treasury yields surged over 5%, in their biggest one-day move since Donald Trump’s ‘Liberation Day’ tariff announcement almost 18 months ago.
These moves are rattling the wider global bond market (as US debt is the ‘risk-free’ asset used as a benchmark by global financial markets).
Already today, yields on Japan’s benchmark bonds have hit their highest level in decades.
Ipek Ozkardeskaya, senior analyst at Swissquote, explains why markets were rattled:
double quotation markIn the US, flash PMI figures for September showed activity expanding at the fastest pace in more than five years. New orders grew at the fastest pace since April 2022, while manufacturing hiring was the strongest since February 2021.
Massive AI investment and resilient consumer spending outweighed energy-price-led worries, though supplier delivery times stretched, according to the same data, while input costs remained elevated due to high energy prices and supply-chain pressures.
In other words, economic activity expanded strongly while price pressures remained elevated. That’s the perfect combination for fuelling further rate-hike expectations.
The agenda
-
11am BST: CBI distributive trades survey of UK retailers
-
8.30am BST: Swiss National Bank’s interest rate decision
-
1.30pm BST: US jobless claims data
-
3pm BST: Bank of England’s Clare Lombardelli speech on “Macroeconomic Policy in a Heterogeneous and Imperfectly Rational World”
Share
