Treasury Yields Set for Steepest Quarterly Jump Since 2022

Summary

The 10-year US Treasury yield is up 81 basis points this quarter, heading for its steepest quarterly rise since 2022 and holding at a 19-year peak. Japan's 10-year yield has climbed 42 basis points, its biggest quarterly rise in over two decades. Stocks have largely shrugged off high yields on AI optimism. In Australia, Metrics Credit Partners froze some fund redemptions, signalling private credit stress.

Equities

The FTSE 100 closed 0.5% lower at 10,636.71 on Tuesday, its lowest level since 15 September, as heavyweight energy stocks fell with oil prices. The FTSE 250 rose 0.2%, helped by a sharp jump in Vesuvius after it received a takeover proposal.

Energy stocks dropped 1.9% as oil retreated on signs of a recovery in Middle East exports. BP fell 2.3% and Shell lost 1.7% on Tuesday.

Vesuvius surged 24.7% on Tuesday to top the FTSE 250 after Austria-based RHI Magnesita proposed a cash-and-stock bid for the metal flow engineering firm. AstraZeneca eased 0.5% after hitting a two-month high earlier in the session, having announced a $2 billion investment in Summit Therapeutics.

British American Tobacco fell 1.9% on Tuesday after warning that annual growth would likely come in at the lower end of its forecast range. Consumer staples also weakened, with Tesco down 1.7% and Unilever down 1.2%, while housebuilders and household goods makers gave back 1.3% after surging 10% on Monday.

Bank of England data showed unsecured lending to British households grew at its fastest annual pace since 1993 in August, ahead of next month's budget.

US stocks closed slightly lower on Tuesday as Treasury yields held near multi-decade highs, with the Dow Jones Industrial Average down 0.26% at 51,349.92, the S&P 500 down 0.17% at 7,670.84 and the Nasdaq Composite down 0.08% at 26,797.54. The 10-year yield reached 5.293%, its highest since June 2007, while the 30-year yield hit its highest level since June 2002.

Fair Isaac plunged 26.5% on Tuesday after Federal Housing Finance Agency Director Bill Pulte said Fannie Mae and Freddie Mac would move to a single pricing grid. Meta gained 3.3%, despite OpenAI unveiling always-on agents called dots, seen as a rival to Meta's newly released Muse.

CarMax rose 4.7% on Tuesday after reporting higher second-quarter profit and revenue. Consumer confidence fell to a near 12-and-a-half-year low in September, while expectations of a Federal Reserve rate increase in October dropped to 51.5% from nearly 70% earlier in the session after comments from New York Fed President John Williams.

Forex & Commodities

The US dollar held close to its strongest level of the year against the euro early on Wednesday, and was on course for its largest monthly gain against the single currency in 14 months. The euro was at $1.134 in Asian trade, after falling to $1.131 on Tuesday, its lowest since May 2025. The British pound was also near a three-month low at $1.324.

The dollar fell to 156.4 yen early on Wednesday, its lowest in almost two weeks, after touching a near 17-month high of 0.8358 Swiss francs on Tuesday. The Australian dollar dropped to $0.6959 on Wednesday after Australian inflation came in slightly below forecasts. The New Zealand dollar was at $0.5646.

The US core PCE price index is due on Wednesday, followed by nonfarm payrolls on Friday. Markets were pricing a 50% chance of a Federal Reserve rate hike in October, down from 71%, after New York Fed President John Williams said on Tuesday there was no urgency to raise rates. The Fed raised rates by 25 basis points this month.

Spot gold was little changed early on Wednesday at $4,180 an ounce, but was on course for a 6% monthly loss. Silver fell 0.6% to $61.07, while platinum and palladium were also lower.

Brent crude rose 0.7% to $103.3 a barrel early on Wednesday, while US West Texas Intermediate was at $89.81. Oil rose after President Trump denied he would ease sanctions on Iran, with Brent heading for a monthly gain of around 14%.