Global bond markets took a breather on Friday after the worst stretch of selling since the spring, but only just. The 10-year US Treasury yield touched levels near 5% during the week, its highest in three years, before pulling back slightly as August CPI matched forecasts at 3.4%. The 30-year yield hit 5.3803%, a 19-year high, and mortgage rates moved with it. Brent crude climbed to a four-month high of $109.97 a barrel on Friday after a 6% overnight jump, capping a weekly gain of nearly 13%.
The driver is not a surprise in kind, only in degree. Fighting between the United States and Iran resumed in recent days after a fragile lull, and Iran-aligned Houthis seized the Yemeni port of Mocha, threatening Saudi oil exports through the Red Sea. Shipping through the Strait of Hormuz, which carried about a fifth of global oil and LNG before the war began in late February, remains restricted. US diesel prices crossed $6 a gallon for the first time on Friday, a shock for transport and agriculture and a political problem ahead of November’s midterms.
Inflation data, mixed relief
August US consumer inflation came in unchanged at 3.4%, in line with analyst expectations and well above the Fed’s 2% target. Traders had feared a worse print after four straight losing sessions for Wall Street, driven partly by oil above $104. Stocks rebounded on the release, with major indices posting solid gains. “It came in as expected. Investors are resigned to the fact that the Fed is going to raise rates next week,” said Jack Ablin of Cresset Capital Management, calling the print “a little frosting on an otherwise rancid cake.”
Markets now price roughly a 70% probability of a rate hike at the September 16 meeting, up from about 41% a week earlier. Fed Chair Warsh has pledged to tame inflation, and JPMorgan analysts expect eight of the nine major developed-market central banks to raise rates by year end, including the Fed, the Bank of Japan, all four major European central banks and the reserve banks of Australia and New Zealand. The European Central Bank raised rates to 2.5% this week for a second time this year, citing energy costs, and some officials see an October move in play.
| Instrument | Level | Context |
|---|---|---|
| Brent crude | $109.97 high | +13% on the week |
| US 10-year yield | ~4.97-5.00% | 3-year high |
| US 30-year yield | 5.3803% | 19-year high |
| Japan 10-year | 2.97% | Wholesale inflation elevated |
| Australia 3-year | 5.047% | 15-year high |
The sell-off spreads
The bond rout was not confined to Treasuries. Australia’s three-year yield surged 18 basis points to a 15-year high of 5.047%. Japan’s 10-year rose 6 basis points to 2.97% as data showed wholesale inflation staying elevated, strengthening the case for a Bank of Japan hike. Analysts warn that if a full Saudi-Houthi war resumes and further endangers shipping through the Bab el-Mandeb strait, Brent could reach about $122 later in the year.
A partial culprit inside the US selloff was mechanical: the Treasury Department’s buyback programme fell short of the expected $6 billion in value, removing a support the market had counted on. The department plans to buy back up to $6 billion in longer-term debt, and the shortfall in the executed size rattled traders already positioned for worse. Treasury Secretary Scott Bessent has warned traders he is “the house now,” a comment that drew attention given the department’s growing role in managing the long end.
What it means for borrowers
Higher long yields feed directly into mortgages and corporate borrowing. US mortgage rates rose with the 30-year Treasury, and housing activity had already softened. Italy extended a diesel tax cut to Wednesday as fuel prices bite across Europe. In Asia, governments that import energy are watching their currencies: the dollar held near recent highs, and frontier-market borrowers face heavier servicing costs as dollar funding gets more expensive.
Equity investors face the same equation from the other side. Rising yields compress valuations for long-duration growth stocks, and the AI-heavy leadership of this year’s rally is the most exposed segment. Friday’s rebound after the CPI print suggests markets can absorb a hike that is fully priced, but the week’s pattern, down four sessions and up one, is not what a durable risk-on move looks like.
The path from here
Two things decide the next stretch. The first is Hormuz. Any durable agreement reopening the strait would take the risk premium out of oil quickly, as markets demonstrated in April, when a two-week ceasefire announcement sent US crude down more than 16% in a session and stocks surging. The second is the Fed itself. A hike on September 16 is close to fully priced, so the reaction will hinge on the statement and Warsh’s press conference, particularly any hint about how far the tightening cycle goes.
Fed Governor Christopher Waller offered the market one piece of comfort earlier this month, saying he would support holding rates if price pressures keep easing toward the 2% goal. That view now looks like a minority position inside the committee. President Trump has publicly pushed the Fed for a cut even as the data argues for a hike, an unusual split-screen that adds political noise to next week’s meeting without changing the underlying math.
For households, the transmission is already running. Diesel above $6 shows up in delivery fees and grocery logistics before it shows up in any index. Mortgage applicants face rates that moved against them all week. Savers, meanwhile, get the one bright side of the bond rout: money-market and short-term Treasury yields near 5% remain available for anyone holding cash, a reward for patience that looked unlikely a year ago.
With diesel above $6 and Brent near $110, the inflation data due in the coming weeks will likely decide whether the September hike is the only one or the first of several. Markets get a holiday Monday in the US, then three trading days to position before the decision.