Bond markets find brief relief as oil prices and US-Iran strikes fuel inflation fears | Ukraine news
A fragile rebound in bonds is colliding with rising oil prices, stronger rate bets, and fresh clues about the next central-bank moves.
After a sharp sell-off, bond markets got a brief respite on Thursday, with yields on U.S. and Japanese debt easing somewhat. At the same time, the overall environment remains challenging for investors in debt assets.
As stated by Reuters
Oil prices are holding above $90 a barrel. The United States and Iran have intensified their mutual strikes, fueling concerns about a new wave of inflation and putting pressure on central banks to maintain tighter monetary policy.
Markets await the Federal Reserve’s decision
Investors have raised their estimate of the probability that the U.S. Federal Reserve will increase its benchmark interest rate by 25 basis points in September. According to CME Group’s FedWatch tool, that probability now stands at around 67%, up from 37% a week ago.
New York Federal Reserve President John Williams tempered those expectations somewhat. He said that rising yields on long-term bonds reflected the resilience of the economy and that he would like to see more data before making a decision on interest rates.
Employment figures released by ADP on Wednesday came in weaker than forecast. On Friday, the market is awaiting the more important monthly report on U.S. nonfarm employment. The next key indicator will be consumer price index data, due to be released on September 11.
Also scheduled for Thursday is a speech by Federal Reserve official Christopher Waller at an event in Washington at 12:30 GMT. In July, he suggested that interest rates could remain elevated in the near term.
Europe and Japan keep an eye on inflation
The European Central Bank and the Bank of Japan are also facing inflation risks. Data released on Thursday showed that Japan’s services sector grew at its fastest pace in five months in August. This strengthens the view that the country’s economy is strong enough for a possible rate hike by the Bank of Japan.
Against this backdrop, the yen rose to a three-week high, extending its gains after a sharp jump the previous day. The market’s move fueled speculation that the Bank of Japan may have conducted a rate check through financial intermediaries.
Japanese government bonds, which have recently found themselves at the center of turmoil in debt markets, also received some support. An auction of 30-year securities showed acceptable demand. The yield on benchmark 10-year bonds fell after reaching a 30-year high of 3.015% the previous day.
Corporate sector and futures
Semiconductor company Broadcom said after the close of trading on Wednesday that it expected strong sales of chips for artificial intelligence systems over the next two years. Despite the optimistic outlook, its shares fell more than 3% at one point in extended trading.
Futures pointed to slight gains for European and U.S. stock indexes. Contracts on the pan-European Euro Stoxx 50 rose 0.03% to 6,373 points, while futures on the S&P 500 gained 0.07% to 7,682.8 points.
Market participants are now focused on U.S. employment data and the upcoming inflation report. These indicators could determine the further direction of bond yields, currencies, and stock indexes.
