Global Bond Rout Pauses as Fed Officials Signal Rate-Hold Hopes
The global sovereign bond sell-off paused for a second consecutive day as Federal Reserve officials provided a temporary reprieve to battered fixed-income desks. Benchmark borrowing costs across Europe and Asia retreated from multi-year peaks, with Germany's two-year Schatz yield holding steady at 2.957%. The benchmark German 10-year Bund yield also eased to 3.357% after touching a 2011 peak earlier in the week.
In contrast, Australia's debt market remained under pressure, with its 10-year government bond yield hovering at 5.163%, close to its highest level in over 15 years. The Reserve Bank of Australia is expected to continue tightening monetary policy, fueling expectations of further rate hikes.
The quadruple shock that drove the global bond rout included the escalation of the Persian Gulf war, hawkish central bank consensus, a corporate AI debt glut, and a shift away from safe-haven assets. However, Federal Reserve Governor Christopher Waller's comments during a Reuters NEXT event sparked a repricing of global rate curves.
Waller stated that recent macroeconomic indicators suggest underlying disinflation forces remain intact, implying he would favor keeping interest rates unchanged at the Fed's September 15-16 policy meeting if upcoming data reinforces this trend. As a result, traders dialed back the probability of a 25-basis-point Fed rate hike to 50% from nearly 68% earlier in the week.