Global Bond Markets Breathe Sigh of Relief Amid Ongoing Inflation Fears
Bond markets in the US and Japan breathed a sigh of relief on Thursday as yields edged lower, but investors remain cautious due to ongoing inflation concerns.
The price of oil remains above $90 a barrel, with tensions between the US and Iran escalating. This has led central banks to tighten monetary policy, increasing the likelihood of a 25-basis-point rate hike by the Federal Reserve this month to about 67% from 37% odds just last week.
Federal Reserve Bank of New York President John Williams tempered expectations slightly on Wednesday, saying that rising long-term bond yields are a reflection of a solid economy and that he wants to see more data before deciding on rates. The upcoming release of ADP labor figures on Wednesday came in below expectations, but the closely watched monthly report on US nonfarm payrolls is set for Friday.
The European Central Bank and the Bank of Japan also have inflation concerns, with data showing Japan's services sector expanded at its fastest pace in five months in August. This has helped the long-suffering yen rise to a three-week high, adding to a surge on Wednesday that raised suspicions of a rate check by Japan's central bank.