Bond Yields Cool While Hovering at High Levels — 2nd Update

By Emese Bartha and Paulo Trevisani

Demand for U.S. government debt bounced back Wednesday, sending Treasury yields slightly lower while a global bond rout keeps borrowing costs high in the developed world amid concerns over inflation and fiscal deficits.

Global bond yields again hit multiyear highs overnight. Ten-year Treasury yields rose to their highest in nearly three years, at 4.818%, before retreating to 4.792% in U.S. morning trade, according to Tradeweb data.

In Europe, the 10-year German Bund yield hit 3.378%, the highest since April 2011. In the U.K., the 10-year gilt yield hit 5.294%, the highest since 2007, according to LSEG data, but also cooled somewhat in more recent trading. This came after Japan's 10-year government bond yield hit its highest level since September 1996 during Asian trade.

The rise in U.S. yields was placated, in part, by dovish language from New York Fed President John Williams. He said in a CNBC interview that there are "no clear signs" that an interest rate increase is necessary right now to tame inflation.

Odds of a September Fed increase dropped to 65% from 70%, LSEG data showed.

"Historians will point to the fact that September is a traditionally trying month for investors," Richard Hunter, head of markets at Interactive Investor, said in a note. The first trading day of this month "did little to upset that trend as global equities fell and bond yields continued their upward ascent," he said, referring to Tuesday's trade.

The U.S. and Iran again exchanged fire Tuesday, causing the price of Brent crude oil to rise 0.5% to $95.08.

The U.S. dollar mimicked the moves in yields, rising overnight before cooling a little. The DXY dollar index, which measures the dollar's value against a basket of currencies, increased to 99.863, its highest in almost three weeks, then slipped to 99.559 as the greenback weakened nearly 1% against the Japanese yen.

The global bond selloff continues on the back of renewed tensions between the U.S. and Iran and rising oil prices as a result, Christian Hantel, portfolio manager at Vontobel, said in a note. Investors also continued to digest Federal Reserve Chairman Kevin Warsh's Jackson Hole, Wyo., speech from Friday, where he warned about inflation risks and reinforced the prospect of higher interest rates, he said.

"Now we are likely to live with higher yields for longer," Hantel said.

Importantly, however, bond markets aren't in panic mode and are functioning properly, analysts at Allianz Research said.

Renewed tensions in the Middle East since July and destruction of refining capacity in Russia have raised energy costs again, in particular gas prices, leading to higher inflation and central-bank rate-rise expectations. This explains the lion's share of the latest increases in yields, they said.

"Bond markets are still functioning well according to bid-ask spreads or auction demand, but elevated rate levels are rightfully raising debt sustainability concerns," they said.

Fiscal risks and abundant supply on bond markets are other factors which are weighing on bonds.

In the eurozone, demand for bonds will come under intense scrutiny this month as Europeans return from holidays and national debt agencies also resume auctions.

The Investment Institute by UniCredit forecasts gross government bond issuance of 120 billion euros ($139.12 billion) in the eurozone in September, leaving the net supply positive as redemptions will amount to 86 billion euros, fixed income strategist Francesco Maria Di Bella said in a note.

In this context, France's auction of up to 13.5 billion euros in long-end government bonds on Thursday will be particularly closely watched.

The 10-year French OAT-German Bund yield spread rose to 91 basis points Wednesday, the widest since March, before retreating to 88 basis points, according to LSEG data.

Write to Emese Bartha at emese.bartha@wsj.com and Paulo Trevisani at paulo.trevisani@wsj.com

(END) Dow Jones Newswires

September 02, 2026 11:29 ET (15:29 GMT)