Weekly Global Markets: Week ending 2 October 2026
Data cutoff: 06:00 UTC / 08:00 SAST, Friday 2 October
Higher yields, unequal costs
The US ten-year Treasury yield reached 5.34 per cent on Thursday, its highest level since 2002. Britain’s thirty-year government bond yield crossed 6 per cent for the first time since 1998 and French ten-year yields approached 5 per cent. Buyers subsequently returned to Treasuries, but the week had brought another increase in the market rates at which governments could borrow.
The important distinction was between finance becoming more expensive and finance becoming unavailable. The IMF said on Thursday that global bond markets continued to function in an orderly manner. That rules out neither financial trouble nor economic damage, but it does argue against describing the sell-off itself as a general funding crisis. Higher borrowing costs can reduce spending and delay investment without banks stopping lending or governments failing to sell their debt.
Understanding the cause matters as much as recording the yield. On 16 September the Federal Reserve raised its policy rate by a quarter of a percentage point to 3.75–4 per cent, citing elevated inflation alongside resilient spending and strong investment. But a ten-year bond reflects expectations for short-term rates over many years, not simply the next Fed meeting. Investors can expect a pause soon and still expect rates to remain higher over the following decade. A change in the odds of the next decision cannot, by itself, explain the whole bond market.
The recent evidence is more specific. BBVA Research’s 1 October review found that rising inflation-adjusted Treasury yields had accounted for almost all the increase in nominal yields, while market-based inflation compensation remained broadly stable. Its model-based breakdown attributed most of the recent ten-year increase to higher expected short-term real rates rather than the term premium, the additional compensation for holding long-term debt. These estimates are not directly observable facts, but they challenge the claim that the move was mainly a surge in inflation distrust or fiscal risk.