Morning Bid: Yield to worst

The third quarter of 2026 has been marked by record-high government bond yields, soaring diesel prices, and crude oil prices reaching above $100 per barrel as tensions in the Middle East persist. Amidst these concerns, investors also faced warnings about the potential risks posed by advanced artificial intelligence systems and the warnings of tech leaders. Despite this, global equities have continued to rise, driven by strong corporate earnings growth, setting the stage for another test of resilience in the fourth quarter.

This week, the bond market received significant attention as the benchmark 10-year US Treasury yield reached a 24-year high of 5.34% on Thursday, following an increase of more than 80 basis points in the third quarter. The pain was also felt in European bond markets, particularly in France, where yields hit a 24-year high near the psychologically important 5% level due to fiscal concerns.

The spread between French and German sovereign bond yields widened to more than 140 basis points, the widest since 2012, causing a ripple effect on European stocks and the euro.

Japan's 10-year government bond yield rose to near a 30-year high of 3.115% after inflation in Tokyo rose at the fastest pace in 10 months in September. The Bank of Japan is expected to raise interest rates again in December. Australia's central bank increased its policy rate by 25 basis points to 4.60%, a 15-year high, with more hikes anticipated.

However, a sign of potential easing emerged as the 2-year US Treasury yield fell midweek following comments from the New York Federal Reserve President John Williams, suggesting no urgency for another Fed rate hike in October.

In politics, UK Prime Minister Andy Burnham urged to revive Britain's economy by addressing social care, housing, and utilities, hinting at the possibility of rejoining the European Union, which could potentially boost sterling assets. Geopolitical tensions are also on the rise, with the US and Iran reportedly sending additional warships and troops to the region, raising expectations of possible large-scale military strikes after the US midterm elections in November.

Oil prices, including Brent crude, have been volatile due to elevated geopolitical risk, while China's suspension of October fuel exports has put pressure on diesel prices.

Trade tensions between China and the US eased slightly as both countries announced plans to cut tariffs on $60 billion worth of goods. In the tech sector, Anthropic, an AI company aiming for a $2 trillion valuation, reported revenue growing 12-fold in 2025 to nearly $4.6 billion, with operating losses doubling to over $8 billion.

Nvidia boosted its share buyback authorization by a record $150 billion. Investors will also closely monitor the September US nonfarm payrolls data and the minutes from the Federal Open Market Committee meeting for insights into the Fed's future rate decisions.