The global bond selloff continued into September, stoked by unresolved conflict in the Middle East and the inflationary impact of high oil prices. During the month, the price of a barrel of Brent crude oil rose above US$100 once again, climbing as high as US$109.97.
- Interest rates went up in the US, eurozone and Japan
- The ten-year Treasury bond yield hit its highest level since 2002
- The OECD upgraded its global growth forecast for 2026
Bond yields hit multi-decade highs: the global bond selloff continued into September, stoked by unresolved conflict in the Middle East and the inflationary impact of high oil prices. During the month, the price of a barrel of Brent crude oil rose above US$100 once again, climbing as high as US$109.97. The yield on the ten-year US Treasury bond ended the month at 5.29% – its highest level since 2002 – while the yield on the 30-year Treasury bond hit levels last seen in 2004. Elsewhere, the yield on the ten-year German Bund reached its highest level since 2009. The Organisation for Economic Cooperation & Development warned: “Further increases in long-term sovereign bond yields are an increasingly important risk.” Although the OECD upgraded its forecast for global growth this year from 2.8% to 2.9%, it cautioned that the economic outlook is “heavily dependent on whether a durable resolution to the Middle East conflict is achieved.”
‘”Further increases in long-term sovereign bond yields are an increasingly important risk’” (OECD)
Hawkish Fed: the Federal Reserve (Fed) raised interest rates for the first time since July 2023, increasing the key federal funds rate by 25 basis points to a range of 3.75% to 4%. Most Fed policymakers expect rates to rise again before the end of this year. Fed Chair Kevin Warsh commented: “Inflation is too high and has been for too long”. The rate of consumer price inflation accelerated to 0.4% during August compared with 0.1 % in July, but remained unchanged at 3.4% on an annualised basis. While the Dow Jones Industrial Average Index fell by 4.3% over September, the Nasdaq Index rose by 1.9%.
Eurozone inflation remains a challenge: the European Central Bank (ECB) raised interest rates from 2.25% to 2.5%, citing the impact of higher inflation, which “is set to remain well above target for an extended period”. The Dax Index fell by 4% over September. ECB policymakers expect inflation to average 3% this year and 2.5% next year. ECB President Christine Lagarde commented: “We are determined to deliver on our target.”
Yen weakness persists: the Bank of Japan increased its key interest rate from 1% to 1.25% in September. Although the annualised rate of core inflation edged down from 1.8% to 1.7% in August, core inflation remains near the BoJ’s 2% target. Despite the central bank’s tightening activity, the yen remained weak against the US dollar. The Nikkei Index rose by 0.7% over the month.
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