Global fixed-income markets remain under pressure as resilient economic data, rising energy prices, and increasingly hawkish monetary policy expectations keep government bond yields elevated. China remains the major exception, with its sovereign bond market continuing to move independently of the broader global selloff.
US Treasury markets are closed for Labor Day. At Friday's close, the 2-year Treasury yielded 4.37%, the 10-year 4.78%, and the 30-year 5.25%. The curve remains bear-steepened, reflecting a combination of resilient growth expectations and persistent inflation concerns.
Attention is now turning toward Treasury Secretary Scott Bessent's fiscal strategy and upcoming August CPI data. Fed Governor Christopher Waller has identified the inflation report as an important factor in determining whether the Federal Reserve raises rates at its September meeting. Stronger-than-expected August employment data has kept that possibility open, although the report showed no clear evidence of wage-driven inflation pressure.
Credit markets remain comparatively composed. US investment-grade spreads stand at approximately 80 basis points, while high-yield spreads are at 267 basis points, with only modest widening despite recent Treasury market volatility.
European sovereign bonds are facing greater pressure. Germany's 10-year Bund yield has risen to 3.36%, while the French 10-year yield stands at 4.22% and the UK 10-year Gilt at 5.14%.
The selloff reflects two overlapping forces: surging energy prices following US-Iran tanker strikes in the Strait of Hormuz and increasing political uncertainty in Europe. Longer-term borrowing costs across France, Italy, and the UK have reached multi-year highs, while investors are demanding the greatest compensation since 2011 to hold 30-year German government debt.
The European Central Bank is widely expected to deliver a second consecutive 25-basis-point rate increase, with debate already shifting toward whether another hike will be required later in the year. This would reinforce the ECB's position as the most hawkish major G7 central bank.
UK government bonds also remain under pressure, although some institutional investors are beginning to view current yields as attractive. Aviva Investors has been adding exposure to Gilts, arguing that fiscal risks are already well reflected in yields near multi-decade highs.
China continues to move in the opposite direction. The 10-year Chinese government bond yield has declined to 1.68%, while the 30-year yield has fallen to 2.13%. Low inflation, subdued domestic demand, and an accommodative People's Bank of China policy stance continue to anchor the market.
Japan remains an important source of cross-market risk. The 10-year Japanese Government Bond yield has risen to 2.93% as the Bank of Japan continues its policy normalization.
Japan's recent currency intervention may also have implications beyond its domestic bond market. Tokyo's foreign securities holdings fell by a record $87.8 billion at the end of August, raising concerns that US Treasury holdings may have been sold to finance Yen intervention. Speculation that Japan's Government Pension Investment Fund could increase allocations to domestic assets could further reduce Japanese demand for foreign bonds.
Global fixed-income markets therefore remain divided between rising yields across most developed economies and China's continued low-rate environment, with inflation, energy prices, fiscal policy, and central bank decisions remaining the primary drivers.
