After a week-long global bond sell-off pushed yields around the world to levels not seen in nearly two decades, bond markets are finally getting a little relief.
Why it matters: The 10-year U.K. gilt is now about 7 basis points below the 19-year high it hit Tuesday. France’s 10-year yield has fallen 2 basis points from its 18-year high, while Germany’s 10-year bund is down about 1 basis point from its 17-year high.
- Most importantly for mortgage rates, the U.S. 10-year Treasury finally snapped its losing streak Wednesday, with the yield falling 1 basis point for its first down day since last week.
Calm before the storm: Thursday’s domestic data may not be enough to dramatically change that. The U.S. trade deficit is expected to jump to $90 billion in July, which would be the largest since March 2025, while initial jobless claims are expected to edge up to 205,000.
- Neither report is expected to move the needle much. The real test comes Friday with the August nonfarm payroll report.
- Markets are currently pricing in roughly a 60% chance of another Fed rate hike, leaving investors unusually sensitive to any major surprise in the jobs numbers. A strong report could strengthen the case for another hike, while a weak report could make the decision much more of a toss-up.
Complicating matters is Fed Chair Kevin Warsh’s reluctance to provide much forward guidance. Without a clear signal from the Fed, traders may be less willing to make a major move on ambiguous economic data.
The bottom line: After days of relentless selling, global bond markets are finally catching their breath. But with the biggest labor-market report of the month arriving Friday and the Fed’s next move still uncertain, this could simply be the calm before the storm.