US Bond Yields Edge Lower Amid Inflation Fears

Bond markets showed signs of relief on Thursday as yields in the US and Japan edged lower. However, the overall picture for debt investors remains unchanged.

The escalating tensions between the US and Iran have kept oil prices above $90 a barrel, fanning inflation fears that have led central banks to tighten monetary policy.

Markets are now pricing in a 67% chance of a 25-basis-point rate hike by the Federal Reserve this month, up from 37% just last week. However, 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 ADP labour figures will be closely watched, but the more reliable monthly report on US nonfarm payrolls is due out on Friday. The next major data point after that will be consumer price index figures on September 11.