The yields are up but we don't care

Selloff, meltdown, rout? Whatever eye-catching label you want to throw it at, bond yields are moving fast. The spill over into asset classes has been surprisingly limited thus far though - the Nasdaq hitting fresh all-time highs early in the week. Opposing forces have kept metal markets relatively steady. Energy markets are pushing higher late in the week, as Houthi strikes on Saudi Arabia outweigh reported progress of a deal on the Strait of Hormuz. Read on for further details and a preview of what will move markets next week.

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Bond meltdown

The 30-year rate hit its highest level since 2004 overnight. Five-year yields in the US are over 5% for the first time since 2007. While we're reeling them off, let's take a look elsewhere globally: Japan's 10-year rate hit its highest level since 1996; and German Bunds are at 17-year highs, where federal borrowing is now expected to hit a record €525 billion by the end of this year. Swap markets are now pricing in three more hikes from the Fed in the next year, which would take the target rate up to the 4.75% - 5% range. On top of that driving force, persistently high energy prices, surprisingly strong growth expectations and a weak debt auction overnight have all added pressure.

Naturally moves like this are rarely isolated. So far though, the impact on other asset classes has been fairly contained. But with 6% yields seemingly on the horizon, how long can that resilience last? The Nasdaq is sitting near all-time highs, despite increased borrowing costs applying pressure to valuations in the AI sector in particular. Households are increasingly feeling the pain too - rates on car loans, personal loans and most notably mortgages are all significantly higher. Treasury Secretary Scott Bessent's expansion of the bond buyback program in August largely failed to ease the pressure. And market participants have expressed widespread disappointment in the actual level of those buybacks this week, wondering what it will take for the Treasury to fully ramp up purchases.

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Truce extended, but not by much

Mark it on your calendars. The primary upshot of Xi and Trump's meetings this week was an extension of the trade truce by two months, to 10 January 2027. The US expressed concern that while China has kept up its end of the deal on soybeans, it has fallen well short in other areas, including rare earth deliveries. Thus a disappointing kicking of the can down the road, rather giving any real certainty or relief to businesses and traders. Other major sources of friction between the two global powerhouses remain the situation in Taiwan and tech restrictions. Somewhat scarily, Xi also raised the theory of the Thucydides Trap, calling for greater cooperation between the nations. The next chances for a more lasting deal on trade come at summits in Shenzhen and Miami later this year.

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Next week

The RBA will hand down its rate decision on Tuesday. Despite higher unemployment, a hike is widely expected. Later in the week we will be watching Australian CPI, Chinese PMIs and the now preferred measure of inflation in the US, PCE. Nonfarm Payrolls land on Friday, where the consensus is currently at 120k jobs added in September.

Q3 earnings season in the US gets under way through Nike and a big one in Micron. China has entered its main holiday period. Be aware of the chance of outsized moves on the back of thinner than usual liquidity in the Asian session in the coming days. Go well out there.