FISG Daily Market Wrap 1st September

Bond Yields Surge as Fed Rate-Hike Bets and Persian Gulf Tensions Intensify

Global markets entered September under renewed pressure as rising inflation concerns pushed government bond yields to multi-year highs and investors increased expectations for a Federal Reserve rate hike this month. At the same time, escalating tensions across the Persian Gulf lifted oil prices and added another potential source of inflationary pressure. The US 10-year Treasury yield rose 3 basis points to 4.78%, its highest level since January 2025. The global bond selloff was even more pronounced elsewhere, with Japan’s 10-year government bond yield touching 3% for the first time since 1996, while Australia’s benchmark yield reached its highest level since 2011. A gauge of global government bonds climbed for a fourth consecutive day to 3.72%, its highest level since mid-2008. Rate markets have significantly repriced the Federal Reserve outlook following Chair Kevin Warsh’s Jackson Hole comments. Swaps now imply roughly a 65% probability of a September rate hike, up sharply from around 34% before Warsh’s speech. His emphasis on containing inflation reinforced expectations that US interest rates may need to remain higher for longer. The repricing is also affecting other major central banks. US Treasury Secretary Scott Bessent reportedly told Japan’s Finance Minister Satsuki Katayama and Bank of Japan Governor Kazuo Ueda that Japan’s next step should be to raise interest rates. Meanwhile, Australia’s benchmark government bond yield reached a 15-year high as traders increased expectations that the Reserve Bank of Australia may need to tighten policy again in response to persistent inflation. In the Eurozone, the inflation picture provided a slightly more constructive signal. Core CPI was reported at 2.4% year-on-year in the flash estimate, below expectations of 2.5% and down from 2.5% previously. However, the broader global inflation environment remains challenging, particularly as higher energy prices threaten to put renewed pressure on consumer prices. Oil markets remained a major focus as tensions escalated across the Persian Gulf. Brent crude climbed 1.2% to around $91.55 a barrel, with prices receiving support from renewed military activity in the Middle East. The conflict has raised concerns over energy flows and shipping through the Persian Gulf, particularly the Strait of Hormuz. Shipping risks intensified after two oil supertankers were reportedly hit by projectiles in the Strait of Hormuz, according to maritime intelligence. Any sustained disruption to tanker traffic through the Persian Gulf could generate a significant risk premium in crude prices and potentially create another inflationary shock for the global economy. The latest escalation follows renewed exchanges of strikes between the US and Iran, marking the first direct military exchanges between the two sides in around a month. Fighting appears set to continue, with negotiations yet to resume. President Donald Trump dismissed concerns that the conflict was placing excessive pressure on US military resources as hostilities continued. Gold declined 0.3% to around $4,425 an ounce, heading toward a third consecutive session of losses. The rise in global bond yields and increasing expectations for higher interest rates have reduced the appeal of non-yielding assets, putting additional pressure on precious metals despite the elevated geopolitical environment. Equity markets proved more resilient despite the pressure across bonds and commodities. MSCI’s Asia Pacific index gained 0.3%, led by Taiwan. MediaTek surged 9.9% after Nvidia announced a $3.5 billion investment in the chipmaker, providing further evidence of continued capital expenditure across the global semiconductor and artificial intelligence ecosystem. In China, Fitch expects new-home sales and construction activity to remain broadly unchanged in 2026, suggesting that the country’s property-sector weakness is likely to persist without a material improvement in demand or construction conditions. Elsewhere, Russia’s Ust-Luga port reported that a fire had been extinguished, according to the regional governor. Developments around major energy infrastructure remain important for global commodity markets given the ongoing geopolitical uncertainty. South Korea also saw political developments that could influence economic policy. Kim Yong-beom, a presidential adviser who supported leveraged single-stock ETFs and proposed a “citizen dividend” funded by excess tax revenue from the AI boom, stepped down as the government attempts to stabilize its declining approval ratings. Overall, markets are entering September with a challenging combination of higher-for-longer monetary-policy expectations, surging global bond yields and renewed Persian Gulf geopolitical risk. The 65% probability now assigned to a September Fed hike represents a substantial shift from just days ago, while rising oil prices threaten to reinforce inflationary pressures. With long-term Treasury yields already at elevated levels and geopolitical risks surrounding the Persian Gulf intensifying, investors should expect continued volatility across bonds, equities, currencies and commodities. FISG Daily Market Wrap provides a concise view of the forces moving global markets, helping investors stay informed and better prepared for what comes next.