Global markets are experiencing severe turbulence this evening following the close of A-shares, with risk assets tumbling across the board as a wave of selling sweeps through multiple asset classes.
On September 1st, volatility gripped global markets. Equities in Europe and the US have turned sharply lower, with Nasdaq futures falling nearly 1%. Precious metals have also been hit hard, with both gold and silver prices dropping sharply. In contrast, crude oil prices are surging higher.
The key driver behind this selloff is a dramatic global selloff in government bonds. Japan's 30-year government bond yield has skyrocketed above 4.18%, reaching a historic high. Its 10-year yield briefly touched 3% for the first time since 1996. The UK's 10-year yield rose 11 basis points to 5.25%, while the 30-year yield hit its highest level since 1998. In the US, the 10-year Treasury yield has climbed to its highest level since January 2025, with the 30-year yield rising to 5.28%. Germany's 10-year yield is now at 3.339%, its highest since 2011. Australia has also seen a significant jump in yields on comparable maturities, reaching levels not seen since 2011.
Market analysts attribute the surge in global bond yields to oil price increases intensifying inflationary concerns, alongside investor bets that central banks will need to raise interest rates further. Yields are now climbing back to near two-decade highs. The selling pressure began last Friday when Fed Chair Kevin Warsh reiterated a firm commitment to controlling inflation. This week, the selloff has accelerated as Middle East conflicts escalate once again and energy prices rise.
According to market analysts, the market is pricing in expectations of higher short-term interest rates in the US, and this trend is not confined to the US but is a global phenomenon. Investors are now reassessing what the so-called neutral policy rate should be, and this level is gradually moving higher.
In major economies such as Japan, the UK, and the US, high government spending has raised concerns about fiscal positions, leading investors to demand higher yield compensation for holding long-term government bonds. Meanwhile, US technology companies are significantly increasing their bond issuance to finance massive investments in artificial intelligence, which may further crowd out investor demand for sovereign bonds.
On the geopolitical front, renewed hostilities between the US and Iran are raising concerns about prolonged disruption to energy transportation through the Strait of Hormuz, further pushing international oil prices higher. Several current and former officials predict the Middle East conflict could persist for several more months. In the latest development, Greek maritime risk management company Marisks has reported that two supertankers were struck by shells in the Strait of Hormuz.
Nuveen Global Investment Strategist Laura Cooper noted that yields are likely to continue their upward trajectory from here. Facing these risks appearing simultaneously, investors will require a higher term premium to receive adequate compensation for the risks they are taking.
Currently, traders estimate a near 70% probability that the Fed will implement a 25 basis point rate hike at its September meeting. Simultaneously, the market has fully priced in a rate hike by the European Central Bank next week, and there is near certainty that the Bank of Japan will raise rates later this month.
This bond selloff also presents new challenges for the US Treasury Secretary. Just last month, Bessent had introduced additional measures aimed at pushing down long-term Treasury yields. It also creates pressure for Trump, as rising borrowing costs could weigh on the US economy with the November midterm elections approaching.
Prashant Newnaha, Senior Interest Rate Strategist for Asia-Pacific at TD Securities, commented that the bond market hasn't collapsed, but it is sending a very clear signal that if inflation proves more sticky than expected, it will mean policy rates must remain at higher levels for a longer period. He expects the market to continue selling off bonds, with fiscal deterioration and rising term premia likely to remain at the core of market focus going forward.
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