September Storm Brings Rising Bond Yields and Rate Hike Fears

The global financial markets are bracing for another storm in September as the Federal Reserve's hawkish stance sends bond yields soaring. The benchmark 10-year U.S. Treasury yield hit its highest level since January last year, pushing mortgage rates and other business loans higher.

According to Fed chief Kevin Warsh, the central bank has 'work to do' if inflation doesn't come back to target, and current settings are not restricting the economy in any significant way. With little likely to change on the inflation front before the next Fed meeting, futures markets now see a two-thirds chance of a rate rise.

The rising 10-year yield is expected to have bigger ripple effects across the economy than the recent focus on the U.S. 30-year bond. Japan's 10-year government bond yield hit 3% for the first time since 1996, and the revival of the dollar weighs heavily on the yen again.

The Bank of Japan and the European Central Bank are also likely to raise interest rates this month, adding to the pressure on bond markets worldwide. In equities, Asian shares were mixed on Tuesday, while U.S. futures were in the red before the bell.