Key facts
- European benchmark gas prices are at 3-1/2-year highs, and stocks are at their lowest for the time of year since 2011.
- French and German government bond yields reached 15-year highs due to fiscal pressures.
- 10-year US Treasury yields hit a 20-month high, while Japan's 10-year yield touched 3% for the first time since 1996.
- Shein Global shares fell 8% on their first day of trading in Hong Kong.
- The 10-year US Treasury term premium has more than tripled since January 2025.
European markets are entering autumn facing significant challenges, with benchmark gas prices at 3-1/2-year highs and stock indices at their lowest levels for this time of year since 2011. The ongoing scramble for gas, exacerbated by disruptions to Qatar's supply due to the Iran conflict, has deepened a market "backwardation." This situation, where near-term prices exceed future prices, removes the economic incentive for stockpiling gas, leaving Europe reliant on mild winter weather.
Bond markets are showing signs of strain as they emerge from the summer lull. Bund futures have traded at 15-year lows, and French OAT futures are at their lowest since their 2012 launch. Yields on French and German government debt reached 15-year highs on Monday, reflecting increasing fiscal pressures in both nations. Upcoming European inflation data is anticipated to reinforce market expectations for an interest rate hike by the European Central Bank next week.
In the U.S., President Donald Trump has issued threats of further strikes against Iran following an exchange of fire. Meanwhile, yields across the Atlantic are also on the rise. In Tokyo trade, 10-year Treasury yields reached a 20-month high, and Japan's 10-year benchmark yield touched 3% for the first time since 1996.
Equity markets in Asia experienced declines, with Seoul, Tokyo, Sydney, and Hong Kong all seeing losses. In Hong Kong, shares of fashion giant Shein Global dropped 8% on their first day of trading, following an initial public offering that was already impacted by concerns over growth and regulatory challenges.
Some market participants suggest that the rise in global bond yields may not be entirely negative for stocks, as it could be driven by improved growth expectations. However, there is also a concerning increase in term premia, a measure of compensation for holding longer-term debt. According to a New York Fed measure, the 10-year Treasury term premium more than tripled from approximately 26 basis points in January 2025 to over 80 basis points by June. Since the end of June, nominal 10-year Treasury yields have risen by about 36 basis points, with only a 9 basis point increase in breakeven inflation expectations, indicating a combination of rising term premium and real yields.