The bond market bends but don’t break just yet | investingLive

While long-end yields are blowing up all across the globe this week, a big one to watch was whether or not 30-year Treasury yields are going to see a break above the key 5% threshold. 30-year yields in Japan hit unprecedented highs with yields in the UK hitting its highest since 1998. And we also saw 30-year yields in France reach the highest since 2009 yesterday.

All of those moves came hand in hand alongside 30-year yields in the US touching that 5% mark here. The moment proved to be fleeting though. As 30-year yields in the US backed off the pivotal level, we saw a retreat in yields everywhere else too. And that’s leading us to where we are today with yields back down to 4.90%.

It’s a case of bend but don’t break, at least for now.

The easing of the pressure also comes as we did see some softer US data, in particular the JOLTS job openings here. So, that’s the main takeaway to gather as we look towards the next set of US data and before the non-farm payrolls tomorrow.

Further weakness in US labour market data will at least limit the appetite of bond vigilantes. That as it means the Fed may have to pursue quicker and deeper rate cuts i.e. feeling behind the curve. That will turn into a race of sorts in the sense that can the Fed change up its policy path fast enough before stagflation risks, if it does materialise, become the talk of the town?

For more context: The US yield curve continues to steepen post-Jackson Hole

But for the time being, broader markets will be paying the most attention to the US jobs report tomorrow. Another poor set of numbers will help to ease the pressure on the bond market. And that should put off yields from exploding much higher, at least to end the week.

That being said, the pressure valve is still switched on. We can see that with pressures surrounding global bond markets, where domestic concerns are piling on top of fiscal health concerns. And the same can be said for the US as well.

The key 5% threshold for 30-year Treasury yields may be put off for now. However, I reckon this won’t be the last time we see or talk about it for this year.