Key facts
- Borrowing costs in the euro area and Japan reached multi-year highs due to a jump in oil prices.
- Brent crude rose to over $92 a barrel following military actions between the U.S. and Iran.
- Markets increased expectations for a September Federal Reserve rate hike.
- Gold was on track for its best month since January, while global stocks showed caution.
- Japan's 2-year government bond yield hit a 31-year high, and longer-dated euro area yields reached 15-year highs.
Bond markets faced renewed selling pressure as oil prices surged, adding to inflation concerns and bolstering expectations for central bank rate hikes. Brent crude climbed above $92 a barrel following military actions between the U.S. and Iran in the Strait of Hormuz, raising fears of further interest rate increases.
Borrowing costs in the euro area and Japan reached their highest levels in years. Japan's 2-year government bond yield hit a 31-year high, while German and French 2-year yields climbed to their highest since 2024. Longer-dated euro area yields also reached over 15-year highs.
Markets have increased the probability of a September Federal Reserve rate hike to around 60%, influenced by Fed Chairman Kevin Warsh's hawkish remarks. The European Central Bank is widely expected to raise rates at its meeting on September 9-10.
Global stocks were cautious, with Europe's STOXX 600 index dipping 0.2% and MSCI's world stock index marginally lower. In Asia, Japan's Nikkei slipped 0.1%, though Chinese blue chips recovered from early losses.
Gold was on track for its best month since January, and the U.S. dollar slipped. Key upcoming U.S. economic data, including August payrolls and September consumer price data, will be crucial in determining the Fed's next move.