Trading Day: Over and rout

Global bond rout intensified on Tuesday as Japanese yields reached levels not seen in over three decades. Investors feared that policymakers worldwide would have to raise interest rates to combat persistent inflation and lax fiscal policies. Oil prices surged, driven by the ongoing U.S.-Israeli war on Iran, further impacting bonds and stocks.

The worst-performing sectors included consumer discretionary (-2%) and energy (+1.5%). Major U.S. indices fell, with the S&P 500 down 0.7%, Dow down 0.8%, and Nasdaq down 1%. The dollar strengthened, while the yen fell to its lowest level in over a month. Japanese government bond yields hit record highs across the curve, with the 10-year yield surpassing the 4.80% level last seen in January 2025.

Despite the broader economic performance, investors remain concerned about fiscal outlooks for G7 nations and debt servicing costs. Fed Governor Michael Barr suggested that the Federal Reserve may raise interest rates, with a 66% probability according to Fed Funds futures, if inflation does not moderate in the upcoming meeting on September 15-16.