Global bond markets experienced a significant sell-off, with yields rising across the board, while stock markets declined. This downturn was largely driven by a resumption of military attacks between the U.S. and Iran, which caused oil prices to jump over 2%. Brent crude futures settled at $90.49 a barrel, and U.S. West Texas Intermediate (WTI) climbed to $85.76. This geopolitical tension, combined with hawkish remarks from Federal Reserve Chairman Kevin Warsh, heightened inflation concerns and boosted expectations for further interest rate increases from major central banks.
Following Warsh's speech at Jackson Hole, the probability of a September Fed rate hike surged, with Fed funds futures traders pricing in 65% odds, up from 35% previously. The European Central Bank is also widely expected to raise rates in early September. U.S. Treasury yields rose significantly, with the benchmark 10-year Treasury note reaching 4.758%, its highest since January 15, 2025. Yields on German and French bonds also climbed, and Japan's two- and 10-year yields reached their highest since the mid-1990s, with the 5-year yield hitting an all-time peak.
On Wall Street, the Dow Jones Industrial Average fell 374.09 points (0.70%) to 53,185.90, the S&P 500 dropped 25.62 points (0.33%) to 7,686.14, and the Nasdaq Composite decreased by 31.53 points (0.12%) to 26,370.89. The pan-European STOXX 600 was down 0.6%, and MSCI's gauge of stocks across the globe fell 0.34%. Despite the day's losses, major indexes still posted gains for August, with the Nasdaq climbing 3.9% and the Dow securing its fifth consecutive monthly advance. Analysts noted the market is feeling the pressure of climbing yields and entering what is typically a challenging month for stocks. The dollar edged lower against a basket of currencies, while the yen strengthened after comments from Treasury Secretary Scott Bessent suggested a strong chance of a Bank of Japan interest rate hike in September. Upcoming U.S. August payrolls and September 11 consumer price data will be crucial for determining the Fed's next move.
