Bond selloff slows but stocks wobble

Global bond yields remained near all-time highs on Wednesday, as concerns over mounting sovereign debt drove up borrowing costs and unsettled stock markets around the world. The yield on the US long bond peaked at 5.3371% on Tuesday, before settling around 5.28% in Asia. The German 10-year and 30-year bond yields reached their highest levels since 2011.

The French 30-year yield has increased by nearly 50 basis points since the end of June, while Japan's 10-year yield is close to 3% as inflation rises and investors worry policymakers are not acting quickly enough to address the issue. Financial advisor Nigel Green stated that investors are no longer confident that government spending will be brought under control, and they are pricing in the risk that it won't.

The outlook for inflation remains troubling due to high crude oil futures prices above $90 a barrel, with no apparent progress in opening the Strait of Hormuz to oil tankers. The US Federal Reserve will release minutes from its July meeting, where it kept interest rates unchanged, but Chair Kevin Warsh provided little insight into the bank's potential response to persistent inflation.

US and European stock futures declined by around 0.1%. In China, shares of the world's largest humanoid-robot manufacturer, Unitree, surged 600% upon debut, more than 8,000 times oversubscribed by retail investors. Technology and semiconductor stocks in Asia faced pressure, following overnight losses on Wall Street and reports that Anthropic's annual revenue reached $65 billion by the end of July, which was below market expectations.

A cautious sentiment has slightly benefited the dollar in currency markets, although changes were modest. The Canadian dollar rose slightly after US President Donald Trump temporarily halted a 50% tariff on Canadian goods for three days, as the countries reportedly reached an agreement. The euro was trading at $1.1576, and the yen was at 159.44 per dollar, nearing a level that could trigger another intervention by authorities.

Upcoming British inflation data and earnings reports from Lowe's, Target, and TJX will be closely scrutinized after weaker-than-expected US retail sales data last week. Home Depot exceeded expectations for second-quarter sales and profit, driven by strong demand for repair and maintenance services, though US data indicated a sharp decline in homebuilding in July, largely due to rising mortgage rates.

Debt demand has also been challenged by soaring sales by AI hyperscalers, with Alphabet, Google's parent company, reportedly seeking around AUS$5 billion (US$3.5 billion) through an Australian-dollar bond sale, according to Bloomberg News. Marginal bond investors are becoming more sensitive to price changes at a time when significant debt issuance is occurring.

ANZ senior rates strategist Jack Chambers commented, "The marginal investor in bonds, in long-end bonds, sovereign bonds, is becoming a bit more price-sensitive at a time where there's a lot of debt issuance occurring."