US Treasury Yields Hit 2007 Highs as Dollar Surges

Global bonds are recording their worst monthly performance in years, with 10-year US Treasury yields reaching 5.2383%, the highest level since 2007. This surge is driven by deteriorating government finances, high issuance volumes, and inflation linked to energy costs stemming from the seven-month-old US-Israeli war on Iran. Borrowing costs have hit multi-decade highs across the United States, Japan, Germany, and France, though equity markets remain resilient due to artificial intelligence optimism and strong corporate earnings.

In currency markets, the Federal Reserve System's interest rate trajectory and strong US economic growth have pushed the US dollar toward its largest monthly rise against the euro in 14 months. While the dollar has gained nearly 2.5% against the euro, it has fallen against the yen following Japanese rate hikes and joint currency interventions in July and August. The stronger dollar also pushed the Swiss franc to a 16-1/2-month low and the Australian dollar below 70 cents.

Other central banks have responded to inflation pressures, including the Reserve Bank of Australia, which implemented a 25-basis point rate hike on Tuesday. Meanwhile, oil prices have climbed, with Brent crude reaching $103.16 a barrel amid Middle East supply disruptions. Market participants are now awaiting US core PCE inflation data and the upcoming jobs report to determine future rate movements.