Bond Markets Indicate Worries About Inflation Now, Slowdown Ahead — Market Talk

1231 ET - Treasury yields rise at different speeds, with the two-year yield hovering near a 19-month high, at 4.369%, while the 10-year loses some steam and trades at 4.768%. "Short-dated yields are moving up based on traders pricing in a higher likelihood that inflationary pressures will lead the Fed to raise policy rates," Truist's Chip Hughey says in an email, adding that his base case is a hold although it is "an increasingly close call." Longer-dated yields rise slower as "hike expectations and higher energy prices weigh on near-term growth expectations," he says. Friday's labor report will be key for the interest rates outlook, Hughey says. ([email protected]; @ptrevisani)1221 ET - Economists surveyed last month by the Bank of Mexico raised their expectations for this year's economic growth to 1.3% from 1.2% in July, with estimates ranging from 0.6% to 1.6%. The central bank last week lifted its 2026 GDP growth forecast to 1.5% from 1.1%, citing the bigger-than-expected 1.4% expansion in 2Q from the previous quarter. In the August survey, the median 2026 inflation expectation slipped to 3.9% from 4%, with core CPIseen ending this year at 3.99%, virtually unchanged from July. Analysts see the the Bank of Mexico keeping its benchmark interest rate steady at 6.5% for the rest of this year and--with less conviction--in 2027. ([email protected])1146 ET - After a brief break last week, bitcoin ETFs are back to attracting capital from other assets. Bitcoin ETFs recorded a net inflow of $216.7 million Monday, resuming a multi-week streak of inflows that were only interrupted on Friday, according to data from CoinGlass. The uptick in Treasury yields should be a factor pressuring bitcoin, but analysts say that indicators coming later this week look to establish the likelihood of an interest rate hike coming this month — which may then impact the direction for bitcoin and other cryptocurrencies. "The cryptocurrency could remain at risk as expectations of a more restrictive monetary policy in the United States continued to lift Treasury yields," says Milad Azar of XTB MENA in a note. ([email protected])1056 ET - The euro will be driven largely by relative growth considerations and interest-rate expectations, which should provide support for the currency going forward, MUFG currency analysts say in a note. "Recent signs of economic resilience and the continued willingness of the European Central Bank to respond to upside inflation risks will continue to provide support for euro/dollar," they say. These factors will be more important than political risks, including German state elections in September and the French presidential election in April 2027, they say. MUFG forecasts the euro to rise to $1.1800 by end-2026 and then $1.2000 by the end of the first quarter of 2027, compared with $1.1602 currently. ([email protected])1031 ET - Yields on U.K. government bonds, or gilts, could climb further unless the government puts a restraint on public spending at the budget statement on October 28, XTB's Kathleen Brooks says in a note. "Increasingly, Labour [party] backbenchers' spending demands look unfeasible and unaffordable," she says. Gilt yields climbed to multi-year highs on Tuesday, along with their developed market peers, due to inflation concerns amid high energy prices. Fiscal jitters also contributed to higher gilt yields as markets await the U.K. budget. Ten-year gilt yields rise 5.3 basis points to 5.195%, having hit an 18-year high of 5.255% earlier in the session, LSEG data show. Thirty-year gilt yields earlier hit 5.904%, their highest since 1998. ([email protected])0916 ET - Bitcoin is down 1.3% to below $78,000 after a 25% gain in August that pushed the cryptocurrency out of rangebound trading at multi-year lows. The "trend structure" for bitcoin prices was repaired in August, says Maximiliaan Michielsen of 21shares in a note. But he adds that for bitcoin, the "hard work" starts with it clearing the 50-day moving average of $81,000. "[It's] the same $81,000-$82,000 band that rejected price earlier this year and sent it back to the $57,000-$58,000 lows," he says. Ethereum is down 1% to $2,447, XRP drops 0.9% to $1.37, and solana falls 1.8% to $101.88. ([email protected])0901 ET - A global bonds selloff continues, pushing Treasury yields higher, as the war in Iran muddles the economic outlook. Investors worry about ballooning government debt and sticky inflation. Oil keeps rising, with WTI up 2.5% to $87.92. July JOLTS report, at 10 a.m. ET, kicks off a string of U.S. labor data likely to move markets this week. Odds of a Fed hike in September tick higher to 66% from 65% yesterday. The two-year Treasury yield, which is more sensitive to Fed policy, touches 4.369%, which would be its highest settle since January 2025. The 10-year goes as high as 4.797%, also the highest in 19 months. ([email protected]; @ptrevisani)0856 ET - The Bank of Canada might try to ease immediate concerns over the economic damage from escalating US-Canada trade tensions, says Ali Jaffery, chief economist at KPMG Canada. For starters, Canada tariffs on US imports, which kick in next week, mostly target intermediate goods, or inputs used to make final products, as opposed to consumer goods. Combined with the existing slack in the economy, the trade developments should not ignite immediate inflationary pressure, Jaffery tells WSJ. Canada faces two economic shocks with uneven impacts, he adds. Trade tensions will pose a drag on investment and hiring, while the Mideast conflict is keeping energy prices elevated but also lifting income in resource-rich parts of Canada. The BOC "has a very strong reason to be in wait-and-see" mode, Jaffery says. ([email protected]; @paulvieira)0850 ET - The escalation in US-Canada trade tensions will weigh heavily on Bank of Canada officials when they release the latest rate-policy decision on Wednesday, says Dominique Lapointe, Manulife Wealth & Asset Management's senior director of macro strategy. Yet, trade won't drive BOC decision making because the crossborder trade backdrop could still change, Lapointe tells WSJ. Washington has imposed 50% tariffs on certain goods, Canada will impose retaliatory duties next week, and President Trump has threatened 50% levies on Canada autos and auto parts on Jan. 1. The BOC "cannot know what its next move will be in the current context. It will continue to focus on the data at hand and wait for further clarity before trade tensions impact their guidance," Lapointe says. ([email protected]; @paulvieira)0847 ET - Canada's economy looks to be on more solid footing, and that will give the Bank of Canada little reason to panic about escalating US-Canada trade tensions, says Tu Nguyen, economist at RSM Canada. "It is crucial to separate the data from emotions," she tells WSJ, noting both spending and the household savings rate climbed in 2Q. The 50% tariffs the US has imposed on certain Canadian goods, totaling 5% of all US-bound exports, will be "painful in specific sectors, but manageable from the central bank's standpoint." Nguyen anticipates a BOC hike in 1Q, although acknowledging the call is subject to change due to US-Canada trade ties and energy prices. ([email protected]; @paulvieira)0844 ET - Despite heated remarks from US and Canadian officials on trade, the Bank of Canada is likely to take a patient approach on rates and rely on incoming data before changing policy, says Charles St-Arnaud, chief economist at Servus Credit Union. The main impact from the escalating trade row is that it increases the uncertainty about the outlook, he adds. He has a BOC rate hike penciled in for 2Q of 2027. ([email protected]; @paulvieira)0841 ET - The Bank of Canada's rate-policy decision and statement Wednesday might have a dovish tone due to crossborder trade tensions, says TD Securities economist Robert Both. "The BOC has been vocal about trade tensions and tariffs as a downside risk to its outlook," Both tells WSJ. New US tariffs of 50% on certain Canadian goods, and the threat of higher auto duties, are likely to add to uncertainty, Both says. Both adds the BOC could still be in a position to raise rates in 1Q should trade tensions cool. ([email protected]; @paulvieira)