Morning Bid: Bond bruise won't heal

• The third quarter surge in 10-year Treasury yields was the largest since 1994, when rapid Fed rate hikes derailed some of President Clinton's fiscal plans
• France's 10-year yield spread over Germany widened beyond 120 basis points for the first time in 14 years amid new debt estimates and budget tensions
• Foreign investors withdrew 4.6 trillion yen ($29.2 billion) from Japanese bonds in the week through September 26, the biggest weekly exit in six months, as the BOJ signaled further rate hikes

Market Summary: Bond Pressures Persist as Treasury Yields Surge

Key Developments:

The US 10-year Treasury yield surged above 5.3% entering October, marking the largest quarterly increase since 1994 despite better-than-expected August inflation data and reduced expectations for further Fed rate hikes. The 1994 bond sell-off previously forced rapid Fed tightening and derailed President Clinton's fiscal plans.

Market Impact:

US stocks declined Wednesday amid bond market tensions, though chipmaker Micron Technology provided a boost to tech stocks with strong AI-driven results. The company's stock has nearly tripled this year and gained 1% in after-hours trading.

European Developments:

European bond markets faced similar pressure, with France's 10-year risk premium over Germany widening above 120 basis points—the highest in 14 years—driven by new debt estimates and political tensions. UK Prime Minister Andy Burnham is exploring closer EU ties, including potential re-entry options.

Japan Outflows:

Foreign investors withdrew ¥4.6 trillion ($29.2 billion) from Japanese bonds in the week through September 26—the largest weekly exit in six months. The Bank of Japan raised rates to 1.25% last month, a 31-year high, with policymakers signaling potential acceleration of rate hikes to combat inflation and support the yen.

Upcoming Catalysts:

Thursday's agenda includes the September ISM Manufacturing PMI and multiple Fed speaker appearances. Friday's September payrolls report will be crucial for assessing whether recent bond market moves reflect quarter-end distortions or sustainable trends.

China's markets remain closed for National Day holidays through the week.