Bond yields continue to head north

Government bond yields rose further amid an increase in oil prices – Brent crude is back over $90 per barrel again – and in the wake of Fed Chair Warsh’s ‘hawkish’ speech on Friday. Higher yields weighed on equity markets, with US and European stocks losing ground, while the dollar held onto most of the gains it chalked up at the end of last week as Fed rate hike expectations firmed, finishing just marginally lower on the day. The euro and sterling are trading at around $1.16 and just shy of $1.3550 against the US currency respectively, with EURGBP at about £0.8570 this morning. Euro area CPI data due today are expected to show headline inflation accelerated to over 3% in August, which will copper-fasten market expectations for an ECB rate hike next week.

In government bond markets, US long-dated yields rose by 3-4bps on the day – the benchmark 10-year yield reaching its highest level (4.75%) since early 2025 – though short-dated yields were little changed after surging on Friday post Warsh’s remarks, while German yields were 3-4bps higher across the curve (UK markets were closed for a public holiday). Yields generally are heading north again this morning. In equity markets, European stocks shed almost 1%, reversing much of last week’s gains, while US indices clawed back some ground into the New York close but still ended slightly in the red for the day.

German HICP inflation came in slightly lower than expected in August, according to the flash reading, albeit nudging up to 2.9% from 2.8% in July. Based on the (national) CPI measure, core inflation – which excludes energy and food pieces – was unchanged at 2.4%, with a second consecutive decline in core services inflation offsetting an increase in core goods inflation.

Today’s ‘flash’ estimate of inflation in the Euro area is expected to show headline inflation accelerated to 3.3% in August – which would be a new high since the commencement of the Iran war at the end of February – up from 2.9% in July, but core inflation is forecast to be unchanged from July at 2.5%. Other data scheduled include Euro area unemployment for July; the ISM manufacturing index (August) and job openings (July) in the US; and mortgage lending/approvals (July) in the UK. There are a few ECB members due on the wires over the course of the day.