Morning Bid: Yield to worst

• US 10-year Treasury yields rose over 80 basis points in Q3 to 5.34%, while French yields jumped 120 basis points with spreads over German bonds widening to 140 bps, the widest since 2012
• Australia's central bank raised rates by 25 bps to 4.60% (a 15-year high), and markets expect the Bank of Japan to hike again in December after Tokyo inflation accelerated at the fastest pace in years
• Diesel prices hit all-time highs and Brent crude rose above $100/barrel amid Middle East tensions, with China cutting October fuel exports and the US pressuring EU nations to release emergency diesel stockpiles

Market Summary: Bond Yields Surge Amid Inflation Concerns

Key Developments:

Q3 2026 proved challenging for bond markets, with government yields hitting multi-decade highs. The benchmark 10-year US Treasury yield reached 5.34% on Thursday after rising over 80 basis points during the quarter. French yields hit a 24-year high near 5%, jumping 120 basis points, while spreads between French and German bonds widened to over 140 basis points—the widest since 2012.

Central Bank Activity:

Australia's central bank raised rates by 25 basis points to 4.60%, a 15-year high, with more increases expected. Japan's 10-year yield neared a 30-year high of 3.115% after Tokyo inflation accelerated in September, with markets betting on a December BOJ rate hike. The probability of a Fed October rate hike fell from 70% to below 50% after NY Fed President Williams suggested "no urgency" for further tightening.

Economic Indicators:

US PCE inflation registered 3.4% annually in August, well above the Fed's 2% target. September nonfarm payrolls data is awaited, with consensus expecting steady unemployment at 4.1%. Despite bond market turmoil, global equities rallied on strong corporate earnings.

Energy & Geopolitics:

Brent crude surpassed $100/barrel, with diesel prices hitting all-time peaks. The Middle East conflict intensified as the US deployed additional warships. China reduced October fuel exports, prompting potential emergency stockpile releases from EU nations.

Tech Sector:

Anthropic's IPO prospectus revealed 12-fold revenue growth to $4.6 billion in 2025, though operating losses doubled to $8 billion. The filing included unusual warnings about "catastrophic risks to humanity" from AI.