Market snapshot: no shield from yields
Current activity on bond markets is bad news for stock market investors in what is already often a difficult month. ii's head of markets discusses latest developments.
2nd September 2026 08:29
by Richard Hunter from interactive investor
Historians will point to the fact that September is a traditionally trying month for investors, and the first day of trading did little to upset that trend as global equities fell and bond yields continued their upward ascent.
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The resumption of the military spat between the US and Iran has done little to calm markets, with the oil price pushing higher again to over $95 per barrel, an increase of 57% since the beginning of the year. This exacerbates inflationary concerns once more, at a time when governments are being increasingly punished by high levels of indebtedness by paying more to service the debt, let alone raising fresh capital for funding purposes.
The repricing of interest rate risk comes alongside comments from US officials which bring their own levels of caution. The recent comments from the Federal Reserve Chair at Jackson Hole made it clear that bringing down inflation was the top priority, which has moved the likelihood of a September hike to almost 70% on market consensus. Meanwhile, the Treasury Secretary conceded that the “world is awash in debt” and that growth was the only exit.
Of course, much can change before the Fed decision. The latest non-farm payrolls report on Friday and subsequent inflation releases before the meeting will be the indicators from which the central bank will decide on which trends are being established and in turn which factors to focus on.
In the meantime, the direction of travel in the bond markets is increasingly clear, with yields on the 10-year Treasury now at around 4.8% as compared to 4.2% at the beginning of the year and the 2-year up from 3.5% to 4.4%, significant increases which have a particular effect on mortgage rates as well as borrowing more generally.
The bond shockwaves inevitably spread, with the Japanese 10-year rising to levels not seen since 1996 and the German benchmark returning to 2011 highs. For the former, there is the additional complication that investors may repatriate monies which, while supportive for equities, would reduce a substantial source of overseas bond demand.
For the US, weakness in technology stocks was most felt on the Nasdaq index, which slipped by more than 1% after index heavyweights, which have a disproportionate effect on moves such as NVIDIA Corp (NASDAQ:NVDA) and Amazon.com Inc (NASDAQ:AMZN) falling by 1.5% and 1.9% respectively. Even so, the index remains ahead by 12.3% so far this year, running alongside gains of 11.5% for the S&P500 and of 9.8% for the Dow Jones.
The current rise in yields is a global phenomenon and the UK is certainly not immune. UK 10-year yields are at a 20-year high and 30-years at levels not seen for almost 30 years. This puts an additional burden on the cost of borrowing in terms of debt servicing costs, which in turn will limit any headroom the Chancellor may have had ahead of the upcoming Budget.
With this additional concern, the equity effect drove mainly through to the FTSE250 in its guise as something of a domestic barometer, pushing it down by almost 2% although the index nonetheless remains ahead by 8.8% in the year to date.
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The FTSE100 was also weaker, plagued by some significant selling pressure on the miners on a somewhat toxic cocktail of lower commodity prices and a resolute risk-off approach. At the open, the theme continued, with broker downgrades to Pearson (LSE:PSON), Reckitt Benckiser Group (LSE:RKT) and Bunzl (LSE:BNZL), for the latter despite reassuring interim figures yesterday, adding to the gloom.
Losses were contained in the primary index however, mitigated by some inevitable strength in index heavyweights BP (LSE:BP.) and Shell (LSE:SHEL), which tracked the oil price higher. As the FTSE100 effectively trod water amid the skittish sentiment, its gain in the year so far of 8.6% has been hard won, although the record closing high remains elusive, some 1.2% away and apparently just out of reach.
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