Global bond yields march higher

The ongoing surge in global bond yields (which move inversely to prices) continued last week. The yield on 10-year US government bonds (Treasuries) rose for an eighth consecutive week to close the worst quarter for Treasuries since 1994. Heavy selling last week pushed the yield on 10-year government bonds to its highest since 2002. It briefly topped 5.3% after starting the year at just 4.16%.

The push higher in yields reflects the strength of current US economic data, ever-present worries over energy prices, and investor demands for greater rewards as government debt piles rise.

Elsewhere, UK government bond (gilt) yields briefly hit their highest levels since 1998, but retreated following Andy Burnham’s party conference speech. European bond yields also climbed, as inflation hit a three-year high (3.8%), with the yield differential between French and German bonds rising to its highest since 2011.

The price of Brent crude jumped past $108 a barrel last Monday after President Trump rejected Iran’s proposal to reopen the Strait of Hormuz. Despite easing over the course of the week, oil prices jumped again on Thursday on news of more US warships leaving for the Gulf, adding to speculation that Mr Trump could escalate strikes on Iran following the midterm elections. This would carry the war into next year.

Meanwhile, China suspended exports of processed oil products, sparking further concerns of global fuel shortages. Global diesel inventories are already tight after Russia banned exports through October. By Friday, oil prices were easing thanks to the G7 nations agreeing to release crude and diesel reserves, due to pressure from the Trump administration. Following the news, President Trump said he wouldn’t ban US diesel exports. 

Friday’s non-fam payroll data showed a slowing employment market with the US economy adding just 29,000 jobs in September as hiring slowed. This was an abrupt fall from the Bureau of Labor Statistics’ downwardly revised 133,000 jobs added in August, and barely a third of the 88,000 job gains anticipated. Payrolls for July and August were revised lower by a combined 60,000 positions, with US unemployment climbing to 4.2% in September from 4.1% in August.

Treasury yields initially fell following the report but soon bounced back. The jobs report saw markets reduce the probability of an October rate hike from the Federal Reserve to just 18.3% on Friday, down from 24.4% a day earlier, and 64.2% a week previously. The probability that US rates remain on hold meanwhile rose to 81.7%, with an 85% chance of interest rates rising again before the year ends.