Global bonds rally after poor US economic data

Bond markets rallied on Wednesday, recovering from a global sell-off, as disappointing US job openings data prompted bets that the Federal Reserve would cut interest rates more aggressively to support the world’s biggest economy.

Job openings fell to 7.18mn in July according to closely watched Jolts data, below the 7.38mn expected by economists polled by Reuters, and down from 7.44mn in the previous month.

Andy Brenner, head of international fixed income at NatAlliance Securities, said the job openings and other data showing higher lay-offs “got my attention, and the market’s attention”.

The rally halted a bond market slide that had pushed borrowing costs in some big economies to their highest levels in years. The yield on 30-year US Treasuries fell 0.06 percentage points to 4.90 per cent. Bond yields move inversely to prices.

The moves powered a recovery in sentiment towards sovereign bonds around the world, after Japan’s 30-year yield earlier hit a record high and the UK’s 30-year gilt yield reached a fresh post-1998 high at 5.75 per cent. The 30-year gilt yield fell back to 5.60 per cent.

“The jobs number showed that we are seeing more of a slowdown in the labour market in the US,” said Shaun Osborne, chief currency strategist at Scotiabank. “For the first time since 2021, there are more unemployed people in the US than available jobs — that is a big change in the outlook.”

US stocks were up slightly on Wednesday, with the blue-chip S&P 500 up 0.5 per cent and the tech-heavy Nasdaq Composite up 0.8 per cent. Google shares rose over 9 per cent after the tech group avoided the harshest penalties in a US antitrust case.  

The job openings data comes ahead of US payroll numbers on Friday that will help signal how the economy is responding to President Donald Trump’s tariffs and broader policies.

The Federal Reserve is widely expected to reduce rates by a quarter of a percentage point at the meeting later this month. Traders shifted after the Jolts data to anticipate a slightly faster pace of reductions, with five quarter-point cuts now fully priced in by September 2026.

Fund managers said the rise in government bond yields in recent days was in part due to a surge in issuance, as government debt sales got going again after the summer break, including a record £14bn 10-year syndication in the UK on Tuesday.

Roger Hallam, head of global rates at Vanguard, said the recent weakness in gilts was partly a reflection of nerves ahead of the Autumn Budget and a revival in bond supply.

“We were coming out of quite a low-supply period for gilts,” he said, adding that a “favourable technical backdrop” had now dropped away.

Andrew Bailey, the Bank of England governor, played down the significance of recent rises in UK yields at a parliamentary hearing, saying the country was “in the middle of the pack” in terms of steepening government yield curves — or how fast long-term yields are rising relative to short-term rates.

“You have seen a steepening of yield curves across the whole developed world really,” Bailey said. “The underlying driver of this is global.”

He added: “There is a lot of rather dramatic commentary going on — I would not exaggerate the 30-year bond rate.”

There have been growing strains across sovereign bond markets over the past year as record levels of borrowing among rich nations combine with some weakness in demand for the longest-dated debt from traditional buyers such as pension funds and life insurers, after most central banks pulled back from their crisis-era bond purchases.

That has been exacerbated by inflation that remains stubbornly above central bank targets in many economies, which is especially bad for long-term bond returns, and the political difficulties that governments in the UK, France and elsewhere have faced in trying to balance their books.

“It’s almost a perfect storm of concerns over current fiscal policies becoming inflationary, potentially more global issuance and not enough demand,” said Mitul Kotecha, head of emerging markets macro strategy at Barclays.

Trump’s attacks on the independence of the US central bank have fed fears that global markets are entering a period of “fiscal dominance”, where interest rates are kept artificially low to keep borrowing costs down in the short term, at the risk of fuelling longer-term inflation.

All this uncertainty has driven an increase in long-term government bond yields compared with short-term rates, which are more tied to central bank policy rates.

The gap between 30-year and 10-year rates has risen to about 0.7 percentage points, its highest since 2021, underlining the pressure on longer-term debt. For the first time since July, 30-year yields breached 5.0 per cent in intraday trading.

Concerns over US deficits were reignited this week after an appeals court ruled late on Friday that most of Trump’s tariffs were illegal, threatening hundreds of billions of dollars in potential government revenue. Congress’s fiscal watchdog said last month that the levies would cut US deficits by $4tn over the coming decade.