FISG Daily Market Wrap 18th August

Treasuries, Asian Bonds Extend Slide as Oil Gains

Global bond markets remained under pressure on Tuesday as rising oil prices and concerns over government borrowing pushed yields higher. US Treasuries extended their recent selloff, with the 30-year yield climbing 2 basis points to 5.32%, its highest level since June 2007. The 10-year Treasury yield also moved higher to 4.73%. The pressure spread across global fixed-income markets. Australian and New Zealand bonds declined, while Japan’s 10-year yield climbed to multi-decade highs. European borrowing costs also continued to rise, with French yields reaching their highest level since 2008 and German yields trading around levels last seen in 2011. UK gilt yields are approaching 6%, highlighting the broader rise in global borrowing costs. The bond selloff is being reinforced by concerns over US government spending and the large amount of long-dated debt coming to market. Higher yields are tightening financial conditions and could become an important headwind for equities, particularly high-valuation technology stocks. Oil provided another source of pressure. Brent crude rose around 0.6% to $91.45 a barrel as hopes for a broader Middle East peace agreement weakened. Renewed fighting in Lebanon and comments from Trump regarding the expiring agreement with Iran have increased uncertainty around the region. The Strait of Hormuz remains a key risk for energy markets, with only six vessels recorded crossing on Monday in preliminary data. Continued disruption around one of the world's most important energy corridors could keep crude prices elevated and add another layer of inflation pressure to the global economy. UK Labour Market The latest UK employment data also delivered a softer picture. • Unemployment Rate: 4.9% vs. 4.8% expected • Employment Change: -13K vs. 0K expected • Unemployment Change: -11K vs. +6.7K previously The combination of a higher-than-expected unemployment rate and falling employment suggests that labour-market conditions remain under pressure. For the Bank of England, this creates a difficult balance: weaker employment supports the case for easier policy, while higher energy prices could keep inflation risks elevated.

Market Focus

Today, the key theme remains the interaction between bond yields, oil prices and central-bank expectations.Higher yields are tightening financial conditions, while rising oil prices threaten to push inflation expectations higher. At the same time, softer UK employment data is adding pressure to the domestic growth outlook.For traders, the key question is whether the rise in yields and oil prices develops into a broader risk-off move, or whether equity markets can absorb the higher borrowing costs without a significant repricing.