Bond Markets Breathe Easier Amid Escalating Tensions
Bond markets in the US and Japan took a breather on Thursday, with yields edging lower after recent increases. Oil prices remained above $90 a barrel as the US and Iran escalated strikes against each other, fueling inflation fears that have prompted central banks to tighten monetary policy.
The probability of a 25-basis-point rate hike by the Federal Reserve this month rose to about 67% from 37% odds a week ago, according to CME Group's FedWatch tool. However, Federal Reserve Bank of New York President John Williams tempered expectations slightly, saying that rising long-term bond yields are a reflection of a solid economy and that he wanted to see more data before deciding on rates.
On Thursday, ADP labour figures came in below expectations, but the monthly report on US nonfarm payrolls is due out on Friday. The European Central Bank and the Bank of Japan also have their own inflation concerns, with Japan's services sector expanding at its fastest pace in five months in August, according to data released on Thursday.