The reduction of short-term uncertainties—Fed decisions, the Quarterly US Treasury issuance program, and the BoJ—alongside worsening US economic and job data, has swiftly taken the edge off the October yield surge!

In Europe, the ECB has taken a pause in its rate-hiking spree for the first time since July 2022. All eyes are now on the upcoming monetary policy decisions from the Fed and the BoJ next week.

Alarm bells are ringing in the world of fixed income as the 10-year nominal US Treasury yield skyrockets to 5%. This level hasn't been seen since July 2007, setting off concerns and reactions across financial markets.

The escalation of geopolitical tensions has the potential to impact global inflation, while the current prevalence of restrictive monetary policies worldwide is anticipated to affect global growth in the coming months.

The current surge in long-term interest rates is predominantly propelled by real rates, strongly influenced by the synchronized reduction of balance sheets by most developed central banks.

The world of fixed income investments faced significant headwinds in Q3 2023, as reflected in a roughly 4% decline in the Bloomberg Global Aggregate Bond Index, a prominent benchmark in the global fixed income market.

The hawkish pause by the Fed has sent U.S. real yields to levels not seen since 2008, triggering a market selloff in credit.

ECB may have just administered its final interest rate hike in this tightening cycle, while the Fed appears poised to hit the pause button at its upcoming meeting. This signals a potential approach to terminal rates, unless economies deliver unexpected upside surprises or inflation lingers at elevated levels longer than anticipated.

The bustling start to September, particularly in the primary market following Labor Day, has placed pressure on rates due to heightened hedging activity and on credit spreads because of new issue premiums.

A softening US labor market and a slowdown in European activity, combined with improving inflation, may pave the way for the Fed and ECB to hit the pause button on their hiking cycles.