Global bond markets saw a substantial sell-off on Thursday, with key yields reaching multi-decade highs worldwide. This "bond rout" was primarily fueled by surging oil prices, which topped $107 a barrel for Brent crude and $95.90 for West Texas Intermediate, rekindling inflation fears. Investors were also reacting to strong US business activity data released on Wednesday, which suggested a resilient economy and gave the Federal Reserve more room to continue raising interest rates. The 10-year US Treasury yield, a global benchmark, hit a post-financial-crisis high of 5.145%, while Japan's 10-year yield jumped to a 30-year high of 3.055%. The difference between French and German borrowing costs also widened to its largest since 2012.
The sell-off was exacerbated by hawkish messages from central bankers and competition from the tech sector's funding needs. Geopolitical tensions, specifically concerns about the Iran war and doubts about a US-Iran deal, further contributed to the unsettled market mood. AXA's Chief Economist Gilles Moec noted that all factors were aligning for a rise in long-term interest rates, citing high inflation, hawkish central banks, tech funding competition, and an uncertain US debt trajectory. Market expectations for another 25-basis point rate hike by the US Federal Reserve in October climbed to nearly 70% (according to CME Group's FedWatch Tool) or 75% (according to Trade Nation analyst David Morrison), up from 50-55% a week prior.
Stock markets felt the pressure, although the S&P 500 and Nasdaq staged late rallies to end flat. Major indices like the Dow, S&P 500, and Nasdaq were down earlier in the day, as was MSCI's main world share index and the pan-European STOXX 600. Asian markets, including Hong Kong, Sydney, Taipei, Jakarta, Bangkok, Manila, and Singapore, also closed lower. The dollar strengthened against other major currencies, reaching a two-month high, as rising Treasury yields made dollar-denominated assets more attractive.
