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The week in Global Markets
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Government bond yields surged across major markets as investors demanded more compensation for inflation, fiscal strain and long-term borrowing. Yields stayed elevated even after weak US hiring reduced expectations for another immediate rate increase, showing that the selloff had broadened beyond near-term monetary policy.
Rising borrowing costs and France’s debt outlook pushed European sovereign risk higher and drove the euro to a 17-month low. Strong Treasury yields kept the dollar firm despite weaker US employment, tightening conditions for dollar borrowers worldwide.
Fed officials initially signaled patience, but markets remained focused on inflation and employment as competing policy tests. Weak September hiring lifted rate-cut hopes and stocks briefly, while elevated long-term yields showed that growth concerns had not restored easy financial conditions.
Higher yields exposed the fragility of technology valuations, while South Korea’s reversal showed how quickly an AI-led rally can unwind. The S&P 500 remained resilient only because a small group of large companies carried the index, increasing the market’s exposure to weaker AI returns or earnings.
Oil and supply risks pressured currencies, commodities and rate expectations as Iran’s crisis deepened and industrial demand weakened. The G7 responded with a planned release of 100 million barrels, offering short-term relief without removing the underlying disruption.
Junk bonds suffered their worst month since 2022 as risk premiums widened and refinancing costs rose. Demand for large corporate bond deals also weakened, while regulators pressed private-credit funds to provide more defensible valuations.
Strong demand appeared at shorter and ultra-long Japanese bond auctions even as investors demanded substantially higher yields. Record long-term yields and cautious Bank of Japan guidance also weakened the yen and challenged the country’s equity rally.
China paired tariff relief and broader growth measures with mortgage subsidies, a policy-rate cut and efforts to stabilize property demand. Manufacturing returned to growth, but bank consolidation and unresolved trade, property and confidence problems still limit the durability of the recovery.
Day’s Recap