Weekly Buzz: Global bond yields are back at 2008 levels

Government bond yields around the world just hit their highest levels since 2008. Japan's 10-year yield touched 3% for the first time since 1996, the UK's 30-year reached levels not seen since 1998, and a broad measure of global yields climbed to its highest in two decades. Bond prices and yields move in opposite directions, so rising yields globally mean investors are selling government bonds across the board.

What’s going on here?

US Federal Reserve Chair Kevin Warsh used his keynote late August to spell out that inflation has stayed above the 2% target for five straight years, and that the central bank still has work to do. Traders now see roughly 50/50 odds of an interest rate hike when the Fed meets on September 15 to 16, up from about 30% a few weeks earlier.

Meanwhile, renewed fighting between the US and Iran around the Strait of Hormuz has pushed oil prices to about $92 USD a barrel. Higher energy costs feed into inflation, and that makes investors demand a better return for lending to governments.

The US Treasury tried to lean against the selloff two weeks ago, doubling its bond buybacks to $4 billion USD per operation. Bond yields dipped briefly, then snapped back. Against $40 trillion USD in US government debt, $4 billion USD isn't much of a counterweight.

What’s the takeaway?

The Fed has competing pressures on it right now. Inflation has been above target for five years and oil prices are adding to it, which argues for a hike. The White House wants lower rates to keep government borrowing costs down. And the Fed's mandate covers jobs as well as prices, so a weak jobs report would make a hike hard to justify.

Higher rates for longer mean cash keeps paying and borrowing costs stay elevated for companies and homebuyers. But nobody knows which of these pressures wins, and different assets will respond differently to whatever the Fed does. That's why diversifying your investments across regions and assets matters.

(If you want an expert-managed portfolio that’s diversified across assets and countries, set to a risk level that you’re comfortable with, check out General Investing.)

In Other News: The US turns up the pressure on Canada and China

After trade talks with Canada broke down last week, the US imposed 50% tariffs on roughly $20 billion USD worth of Canadian goods. Canada promised to match those tariffs dollar for dollar starting September 8, and President Trump raised the stakes by threatening to double auto tariffs to 50% from January.

Canada isn’t the only trading partner in the crosshairs. The US Treasury has launched a sanctions campaign targeting countries that do business with Iran, with China (Iran's largest oil buyer) as the apparent focus. Treasury Secretary Bessent said that no country would be exempt, and China responded simply that it would safeguard its interests.

Tariffs are taxes on imports, and sanctions restrict who can trade with whom. Both push costs up for businesses and everyday shoppers. Several trade disputes running at the same time could add to the inflation pressures central banks are already dealing with.

That said, trade disputes tend to follow a pattern: a sharp escalation, a tense standoff, then a deal or a quiet climb-down. The US and China went through this same cycle last year. The message is the same as it was then: to take a long-term view, and invest in a portfolio that’s diversified enough to handle the uncertainty.

Past performance is not an indicator of future returns. These articles were written in collaboration with Finimize.