Morning Bid: September storm

As U.S. and global markets begin September, the stage is set for another wave of government bond turmoil. Following Federal Reserve Chair Kevin Warsh's hawkish remarks during the Jackson Hole symposium on Friday, U.S. Treasury yields climbed across the spectrum, reaching their highest level since President Donald Trump assumed office in January. The benchmark 10-year yield, in particular, has seen significant volatility, with far-reaching implications for mortgages, business loans, and consumer borrowing costs.

The recent bond sell-off began after Warsh's speech, in which he indicated that the central bank has work to do if inflation fails to return to target. He also asserted that current Fed policies are not overly constraining the economy. With little likelihood of inflation correction before the Fed's meeting later this month, market projections suggest a two-thirds probability of a rate increase during that time.

The recent surge in crude oil prices, driven by renewed military exchanges in the Iran conflict, is further exacerbating pressure on bond markets.

Meanwhile, the Bank of Japan and the European Central Bank are also expected to raise interest rates this month, adding to the overall market agitation. In Japan, the 10-year government bond yield reached 3% for the first time since 1996, driven by the strengthening dollar since the Warsh speech and the yen's renewed vulnerability. These developments have fueled calls for the BOJ to follow through on its earlier promise of intervening in currency markets and potentially raising rates this month.

In equities, Asian markets exhibited mixed performance on Tuesday, while U.S. futures faced a downturn before the opening bell. Hong Kong's Hang Seng index closed 1% lower, primarily due to a steep decline in Shein shares following the Chinese fast-fashion retailer's IPO. The earnings season is not yet over, with several major technology companies still to report this week, including Dell and Palo Alto Networks, and Broadcom, the seventh most valuable company on Wall Street with a market capitalization exceeding $1.7 trillion, is set to report tomorrow.