Key facts
- US bond yields rose, pushing stocks to a two-week low.
- Higher oil prices and a Walmart sales miss weighed on markets.
- The probability of a September Federal Reserve rate hike increased.
- Treasury Secretary Scott Bessent's market interventions were scrutinized.
- Japan's inflation is expected to accelerate, potentially influencing BOJ policy.
U.S. bond yields rose on Thursday, reversing much of the previous day's decline following a surprise Treasury buyback announcement, and pushing Wall Street to a two-week low. Higher oil prices and a rare sales miss from retail giant Walmart also weighed heavily on stocks.
Columnist Jamie McGeever argued that the minutes from the Federal Reserve's last meeting suggest a September rate hike remains a distinct possibility. Considering recent energy price movements, particularly for diesel, the market's current 35% probability for a hike next month may be underestimated.
Treasury Secretary Scott Bessent's decision to increase long bond buybacks and his recent intervention in the FX market to support the Japanese yen have raised questions about the administration's commitment to free markets. The column noted that these actions, along with past interventions by the Trump administration, appear aimed at controlling borrowing costs but may lack durable impact if not tied to fundamental economic strategies.
Fed Chair Kevin Warsh's view that bond yields are a useful indicator for policymakers was contrasted with Bessent's assertion that the long end of the Treasury curve does not reflect underlying fundamentals. The article pointed to persistent above-target inflation, near-record deficits, and a national debt exceeding $40 trillion as fundamental factors driving yields higher.
Looking ahead, Japan's CPI inflation data for July is expected to show an acceleration in the annual core rate to 1.8%, with concerns about potential pass-through from producer prices, which have risen sharply. The recent surge in oil prices, up nearly 40% year-on-year, adds to inflationary pressures. Traders are assigning a one-in-three chance of a Bank of Japan hike in September, with nearly 100 basis points of tightening priced by the end of next year.