Morning Bid: A cruel quarter for bonds

Bonds are facing a difficult quarter as tensions in the Middle East continue to fuel concerns about fiscal health worldwide, leading to a surge in borrowing costs. The bond market has become the focal point for market anxiety, with investors positioning themselves for an era of persistently higher interest rates following hawkish remarks from major central banks in September.

The US 10-year Treasury note yield has jumped by 81 basis points during the July-September quarter, marking its steepest rise since 2022 and setting borrowing costs at a 19-year high. This trend is mirrored in Japan, where the 10-year bond yield has increased by 42 basis points, signaling the biggest rise in over two decades.

While some investors see government bonds as an attractive option due to the rising yields, others remain cautious about long-dated bonds amid concerns about high government debt levels. However, stocks have largely remained unaffected by the soaring yields, with investors maintaining hope in the potential of artificial intelligence (AI) technologies.

As the week progresses, economic data releases will shed more light on the state of the European economy and the monetary policy outlook. Key events include August retail sales for Germany, Q2 GDP data for the UK, September CPI figures for France and Germany. The market will also be watching for the outcome of US jobs and inflation data, French budget talks, a UK budget, and potential bond issuances from tech companies.