Global government bond markets experienced a second consecutive monthly sell-off in August. All 18 tracked 10-year benchmark yields rose, with 15 recording double-digit increases, as persistent inflation concerns and expectations that interest rates could remain higher for longer weighed on markets.
The biggest mover was the French 10-year government bond yield, which climbed 18 basis points to 4.17%. Fitch affirmed the country's A+ sovereign rating with a stable outlook; however, it projected that the budget deficit would widen to 5.2% of GDP in 2026. Annual inflation accelerated to an estimated 2.4% in August.
Germany's 10-year Bund yield rose 15 basis points to 3.31%, the third-largest increase among the markets tracked. Destatis data showed that the country's economy expanded by 0.3% in the second quarter, while the manufacturing PMI reached its highest level since May 2022. Annual inflation increased slightly to 2.9% in August, but remained below market expectations.
In Italy, the yield on the 10-year benchmark bond climbed 14 basis points to 4.14%. Its UK and Swedish equivalents registered single-digit moves, ending the month nearly three and seven basis points higher at 5.06% and 3.09%, respectively. The UK Manufacturing PMI remained in expansion territory in August, despite easing slightly. Meanwhile, Sweden's Riksbank left its policy rate unchanged at 1.75% at its August meeting, despite acknowledging inflationary pressures.
Roderick Joniaux, Head of European Government Bonds and Supranational Products at Tradeweb, said: "August extended the sell-off seen in July. Yields moved higher amid expectations that monetary policy may need to remain restrictive, but weaker activity in parts of Europe complicated the outlook. Government bond markets are likely to remain highly sensitive to incoming inflation data and central bank guidance."
Across the Atlantic, Canada recorded the second-largest move, with its 10-year government bond yield climbing 15 basis points to 3.74%. Its U.S. Treasury equivalent rose by a more modest 3.6 basis points to 4.75%. At the Jackson Hole symposium in August, Federal Reserve Chair Kevin Warsh said inflation remained above target and that price stability should be the central bank's predominant near-term focus.
In Asia Pacific, the yield on Japan's 10-year government bond increased by 14.5 basis points to 2.94%. Strong August PMI data added to expectations that further tightening from the country's central bank could follow.
Australia's 10-year benchmark bond yield rose 12 basis points to 5.11%. The Reserve Bank of Australia held its cash rate at 4.35% in August after three increases earlier in the year, but said it was prepared to tighten policy further if upside inflation risks materialised.
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