Global bond rout accelerates as yields hit multi-year highs

The global bond market experienced an accelerated selloff, with yields across major economies reaching significant milestones. Japanese government bond yields climbed to levels not seen in over three decades, while U.S. 10-year Treasury yields hit 4.80%, their highest point since January 2025. This broad-based increase in borrowing costs is driven by investor expectations that central banks worldwide will need to implement further interest rate hikes to combat persistent inflation, exacerbated by rising oil prices and concerns over fiscal policies.

Fed Governor Michael Barr added to the hawkish sentiment, indicating that a rate increase might be necessary at the upcoming FOMC meeting if inflation data remains elevated. This stance is significant as Barr is considered a centrist on the Federal Open Market Committee. Traders are pricing in a 66% probability of a rate hike, reflecting growing market conviction.

Despite these headwinds, global manufacturing activity showed resilience. The Eurozone's manufacturing sector expanded at its fastest pace in over four years in August, buoyed by demand for AI hardware. However, some regions experienced a slowdown, with U.S. manufacturing growth cooling and factory activity shrinking in Italy and Spain.