U.S. 10-year Treasury yields crossed the 5% barrier, reaching 5.029% on Tuesday, the highest value since 2007. The rise of about 7 basis points occurs ahead of the Federal Reserve's September meeting, with markets anticipating a new 25 basis point rise in the federal funds rate, which would thus be between 3.75% and 4%. Barclays states that a 5% yield represents a "historically important inflection point from which rates become a more persistent adversity for equities."
This upward trend in yields has also affected other Western bond markets. In Japan, 10-year bonds exceeded 3%, in the same week that the Bank of Japan is expected to raise interest rates by 25 basis points to 1.25%, the highest level in 31 years. In Germany, the 10-year yield reached 3.55%, a high since 2009, while European stock indices were trading in negative territory.
The expectation of interest rate hikes in the world's largest economy coincides with the first meeting of Kevin Warsh's term at the Fed, who stated he does not intend to give inflation any respite, which remains well above the medium-term target. According to the CME Group's FedWatch Tool, the market assigns a 92.5% probability to a new 25 basis point rise this Wednesday.
Tension in the markets is aggravated by the situation in the Middle East, where Houthi attacks on Saudi oil infrastructure are driving up the price of oil, with Brent crude reaching 107 dollars per barrel. This increase reinforces fears of a new wave of inflation in the global economy, in a context where the technology sector, particularly artificial intelligence, has also been penalized by news of a possible slowdown in activity.
