Gilt Yields Rise as Oil Prices Extend Climb — Market Talk
0738 GMT - Yields on U.K. government bonds, or gilts, rise due to concerns about inflation as oil prices climb further. Widening conflict in the Middle East and further disruptions to the oil supply routes have caused oil prices to surge, raising the risk of elevated global inflation. Increased prospects of the Federal Reserve raising interest rates this week also push government-bond yields higher. Ten-year gilt yields climb 1.1 basis points to 5.369%, having hit a 19-year high of 5.4056% on Friday, LSEG data show. ([email protected])0725 GMT - Eurozone government bond yields edge higher with the 10-year Bund yield hitting a new 15-year high of 3.532% in early trade, Tradeweb data show. Yields are pushed higher by data pointing to economic resilience, as well as high oil prices and inflation concerns as the Middle East situation continues to escalate. As markets continue to absorb the European Central Bank's rate increase last week, focus turns to the Federal Reserve's interest-rate decision on Wednesday, where a hike is a possibility but not a done deal. ([email protected])0714 GMT - Bitcoin edges higher, trimming last week's declines caused by increased expectations of the U.S. Federal Reserve raising interest rates during Wednesday's policy decision. Higher rate-rise expectations have boosted the dollar and reduced the rally in dollar-alternative assets. However, bitcoin remains well below the psychologically important $80,000 level. Bitcoin rises 0.3% to $77,590, below the three-month high of $82,163 reached on September 4, LSEG data show. ([email protected])0643 GMT - The dollar rises to an 11-day high against a basket of currencies, buoyed by increased prospects of an interest-rate hike at this week's Federal Reserve meeting and by higher oil prices. Strong U.S. consumer-price inflation data last week came on the heels of strong U.S. jobs data, leading money markets to price in an 87% chance that the Fed will raise rates when it announces a decision on Wednesday, LSEG data showed. Meanwhile, intensifying Middle East tensions lift oil prices, benefiting the dollar due to its safe-haven status and because the U.S. is an oil exporter. The DXY dollar index rises 0.3% to a high of 99.453. The euro falls to a one-month low of $1.1549, LSEG data show. ([email protected])0633 GMT - The Bank of Japan is likely to raise its policy rate from 1.00% to 1.25% on Friday and bring the rate to 1.75% in June 2027 through additional rate increases, SMBC Nikko Securities says in a note. The Japanese central bank is likely to accelerate the pace of policy tightening to deal with upside risks in inflation, the brokerage says. A complicated Middle East conflict has increased risks of rising crude oil prices, higher global interest rates and the yen's further weakness, the brokerage says. The BOJ could raise the rate further toward 2.25% if crude oil prices advance further and other central banks raise rates, increasing risks of the yen's depreciation, SMBC Nikko says. ([email protected]; @kosakunarioka)0601 GMT - German 10-year Bund yields offer value at 3.50%, Commerzbank's Rainer Guntermann says in a note. The 10-year Bund yield rose last week, hitting a new 15-year high of 3.519% on Friday as oil prices increased amid an escalating situation in the Middle East. However, the rates strategist adds that "the situation in the Middle East and the dynamics in energy prices still pose risks for outright yields and curves." The 10-year Bund yield closed at 3.503% on Friday, according to LSEG. ([email protected])0553 GMT - Jefferies expects an interest-rate hike by the Federal Reserve this week and sees comments from Chairman Kevin Warsh as key, says global economist Mohit Kumar in a note. "We expect a hike from the Fed, but comments from Warsh about the future direction of policy would be key," he says. Regarding further hikes, Jefferies believes that the Fed will deliver less than the forwards which anticipate 3.5 rate hikes, including a possible one this week. "The first hike may be required from a credibility perspective," Kumar says. "But subsequent hikes will depend on how long the war lasts and the oil prices." ([email protected])0545 GMT - U.S. Treasury yields fall across maturities except for small increases on the ultralong end, as investors await a likely rate hike by the Federal Reserve on Wednesday. "We are ripping off the band-aid and now expect the FOMC [Federal Open Market Committee] to lift its policy rate by 25 basis points in September, beginning a tightening cycle that should see the Fed deliver a total of 75bps of hikes between September and Q1 2027," say analysts at TD Securities in a note. After September, they expect follow-up hikes in October and January. The two-year Treasury yield falls 3.3 basis points to 4.610%, while the 10-year Treasury yield is down one basis point to 4.964%, and the 30-year yield rises 0.8 basis point to 5.362%, according to Tradeweb. ([email protected])0519 GMT - BNP Paribas remains bearish on U.S. rates, even as it turns less bearish on rates elsewhere, its analysts say in a quarterly outlook. "We anticipate interest rates will continue to rise through the first quarter of 2027, aligning with our base case of three Federal Reserve rate hikes between September 2026 and January 2027," they say. The anticipated increase is driven by healthy economic growth, persistent deficits and a surge in hyperscaler issuance, "which together should push long-end yields higher and result in a sideways yield curve." However, BNP Paribas analysts expect the market to price out Fed credibility issues as the peak of the mini hike cycle arrives in the first quarter of 2027, sending yields slightly lower from second quarter next year. ([email protected])0511 GMT - The upward spiral in bond yields is likely to become increasingly relevant to the European Central Bank's monetary policy considerations, LBBW's Elmar Voelker says in a note. "The resulting tightening of financing conditions for the economy is already having the effect of a tighter monetary policy," the senior fixed income analyst says. Taken on its own, this argues against another hasty increase in key interest rates, he says. Nevertheless, the updated staff projections from the September meeting last week indicate that under current circumstances, the ECB Governing Council is inclined to further tightening, he says. ([email protected])0511 GMT - Higher oil prices are one reason behind last week's rise in Treasury yields, says Payden & Rygel in a note. Another reason is that U.S. economic growth remains remarkably resilient despite a series of shocks, it says, pointing to hyperscalers' continued AI-related capital expenditures. Total tech spend is on track to surpass $800 billion in 2026, Payden & Rygel says. While investors have expressed skepticism about the sustainability of capex-driven growth, Payden & Rygel says it has heard similar fears for three years running. ([email protected])0506 GMT - J.P. Morgan expects a 25-basis-point interest-rate hike by the Federal Reserve on Wednesday, followed by another one of the same size in December, its strategists say in a note. They find the front end of the Treasury curve "valuable" but they remain neutral on duration. The front end is now at the upper end of the range and creates some optical value, but given the range of plausible outcomes at the Fed meeting, "we are not ready to add exposure yet." They also anticipate Treasurys to underperform versus German Bunds as they remain short Treasurys cross markets versus Bunds. Money markets are pricing in a 60% probability of a 25-basis-point rate hike on Wednesday, according to LSEG. ([email protected])