Treasury Yields Hover Near Multi-Year Highs — Market Talk

0903 ET - Treasury yields rise, hovering near multi-year highs, amid expectations the Fed may raise interest rates Wednesday. The conflict in the Middle East pushes oil prices up by nearly 5%, stoking inflation fears. The WSJ Dollar Index rises 0.5%, as the greenback strengthens 0.9% against the yen and 0.6% versus the euro. The 10-year yield is at 4.985% and could breach 5% for the first time since 2023, on an intraday basis. The benchmark hasn't closed above 5% since 2007. The two-year is at 4.641%, receding after reaching its highest level since July 2024. ([email protected]; @ptrevisani)0829 ET - The cost of insuring euro-denominated credit against default rises amid geopolitical tensions, rising oil prices, and AI-related concerns. Focus is on interest-rate decisions by the U.S. Federal Reserve, the Bank of England and the Bank of Japan due this week. This comes after the European Central Bank increased rates last week. The Fed and the BOJ are widely expected to raise interest rates on Wednesday and Friday, respectively. Markets expect the BOE to keep rates on hold at 3.75%, but fully price in four rate increases by June 2027, LSEG data show. The iTraxx Europe Crossover index of euro high-yield credit default swaps rises 4 basis points to 262bps, S&P Global Market Intelligence data show. ([email protected])0744 ET - The Japanese yen is expected to consolidate within a 150-160 yen per U.S. dollar range in the near term, RBC Wealth Management's Jasmine Duan says in a note. RBC WM anticipates a yen recovery in 2027, supported by slower quantitative tightening by the Bank of Japan, which should stabilize the Japanese government bond market, she says. "We believe an earlier yen recovery is possible if Japan's Government Pension Investment Fund accelerates its shift toward domestic assets, which could catalyze broader investor inflows into Japanese assets and advance the yen recovery timeline," she says. The dollar is last up 0.6% at 154.53 yen. The yen has recovered strongly since the dollar hit a 40-year high of 163.98 yen in late July. ([email protected])0717 ET - Cryptocurrencies could be big winners from a surprise Federal Reserve rate hold later this week, IG's Chris Beauchamp writes. The Fed is widely expected to raise rates Wednesday, with the market pricing a close to 90% likelihood of a quarter-point rise, according to LSEG. However, bitcoin and other digital currencies would likely rally if Fed chair Kevin Warsh manages an about-turn, Beauchamp says. A surprise hold would spur a rout in the dollar, which could in turn push bitcoin to challenge the $81,000 mark. Despite the expected hike, enthusiasm for crypto remains intact, the analyst says. Bitcoin rises 1.3% to $77,946.13.([email protected])0656 ET - India's elevated August inflation data sets the scene for a rate hike in October, Shilan Shah of Capital Economics writes in a note. Further rises in inflation are expected, and the renewed surge in oil prices imply that the "risks are heavily stacked to the upside," Shah said. Fuel-price inflation held steady last month, but the renewed elevated energy prices due to the Middle East conflict leaves open the prospect of further pump price hikes, Shah adds. Excess banking liquidity and rising household inflation expectations also support the expectation that underlying inflation will rise over the coming months, Shah adds. CE expects a total of 75bps of hikes to the repo rate this cycle, taking it to 6.00% in the first half of 2027. ([email protected])0633 ET - The dollar could struggle if the Federal Reserve raises interest rates on Wednesday but doesn't signal that further increases are likely in the coming months, says HSBC's Paul Mackel in a note. "Provided the FOMC vote in favor of a 25 basis-point hike, the tone will need to imply that there is more to come," he says. If Fed Chairman Kevin Warsh uses similar language to European Central Bank President Christine Lagarde last week about not wanting to precommit to further tightening, the dollar would likely struggle, Mackel says. The DXY dollar index rises to an 11-day high of 99.602. U.S. money markets price an 87% chance of the Fed raising rates this week, LSEG data show. ([email protected])0623 ET - Indonesia's new Finance Minister Suahasil Nazara will need to be much clearer about his priorities and provide investors with more consistent signals on fiscal policy, Capital Economics' Gareth Leather says in a note. Nazara replaces Purbaya Yudhi Sadewa, whose tenure was marked by mixed messages on fiscal policy and appeared to undermine the independence of Bank Indonesia. Early signs are encouraging as after Nazara's appointment, he has stressed his commitment to Indonesia's fiscal rules. Nazara's six years as deputy finance minister mean he brings considerable experience and is clearly not simply a political appointee, the economist says.([email protected])0550 ET - Yields on U.K. 30-year government bonds, or gilts, climb to their highest in over 28 years due to concerns about inflation and U.K. fiscal troubles ahead of the Oct. 28 budget. The broadening conflict in the Middle East has pushed oil prices well above the $100 key level, fueling concerns about the risk of a prolonged period of elevated inflation. This raises the prospect that the Bank of England could need to raise interest rates in the coming months. Markets fully price in four interest rate rises by the Bank of England by June 2027, LSEG data show. U.K. 30-year gilt yields rise to 5.951%, their highest since 1998, before trimming gains to last trade at 5.913%, LSEG data show. ([email protected])0524 ET - The selling pressure across global bond markets has been driven by common factors, The Investment Institute by UniCredit's Francesco Maria Di Bella says in a note. These include the inflation shock due to the war in the Middle East, still-resilient economic data and abundant supply coming from public and private investment, the fixed-income strategist says. Bond valuations have also been affected by more idiosyncratic factors, such as substantial fiscal expansion expected in Japan and fiscal risks in the U.K., he says. ([email protected])0503 ET - The euro falls to a one-month low against a strengthening dollar as markets price in a high possibility of the U.S. Federal Reserve increasing interest rates at its decision on Wednesday. Following Friday's strong U.S. CPI inflation data, investors price an 87% probability of the Fed raising rates this week, LSEG data show. The European Central Bank increased interest rates last week but attention will now turn to further evidence on state of the eurozone economy, including Tuesday's German ZEW survey. "With the ECB placing greater emphasis on high-frequency indicators, [the] German ZEW survey will be closely watched," ING's Francesco Pesole says in a note. The euro falls 0.5% to low of $1.1533, LSEG data show. ([email protected])0446 ET - Sterling falls to an 11-day low against the dollar as markets await interest-rate decisions by the U.S. Federal Reserve and the Bank of England on Wednesday and Thursday, respectively. Markets price in an 87% chance that the Fed could raise interest rates this week, LSEG data show, causing the dollar to strengthen versus other major currencies. The BOE meanwhile is expected to leave rates on hold. Investors price in a 67% probability of rates staying unchanged. There are few catalysts that would drive a rally in sterling currently, RBC BlueBay Asset Management's Mark Dowding says in a note. Sterling falls 0.3% to a low of $1.3476, LSEG data show. ([email protected])0445 ET - Crypto markets await a vote this week that decides whether the Senate will begin debating the Clarity Act. A lack of progress this quarter risks crypto slipping down the policy agenda ahead of midterms, says Sygnum CIO Fabian Dori. The vote outcome turns on whether at least seven Democrats or independents are satisfied on issues around ethics and stablecoin yields. Sygnum's research argues that the core market-structure framework is largely settled and the dispute holding up the act is political. More delays could happen if leadership pulls the vote if the count is short, or the bill stalls in amendments and reconciliation with the House text. With roughly two working weeks before the midterm campaign closes the floor, a slip past September is in effect a deferral to the next Congress, Dori says. ([email protected])