Global bond yields surged during August, fuelled by concerns over inflation, government indebtedness, and AI spending. The inflationary situation was compounded by renewed hostilities in the Middle East, which pushed up oil prices once again.
- Leading central banks looked increasingly hawkish
- Trade tensions escalated between the US and Canada
- Brent crude oil rose to US$94.8 per barrel
Oil rises again: global bond yields surged during August, fuelled by concerns over inflation, government indebtedness, and AI spending. The inflationary situation was compounded by renewed hostilities in the Middle East, which pushed up oil prices once again. During August, the price of a barrel of Brent crude oil rose as high as US$94.8, having dipped to US$78.1 earlier in the month. The ten-year Treasury bond yield reached 4.75% by the end of August.
“‘Firms invest less when capital is seen as less safe’” (ECB President Christine Lagarde)
US equity indices peak again: the Dow Jones Industrial Average Index and the S&P 500 Index both hit new closing highs during August, boosted by strong corporate earnings releases. While investors’ appetite for AI-related stocks picked up, higher bond yields dampened demand for more defensive dividend payers. Over August, the Dow Jones Industrial Average Index rose by 1.3%, while the Nasdaq Index climbed by 3.9%. Elsewhere, relations between the US and Canada soured further during the month amid fresh trade tensions between the two countries.
Hawkish Fed: in a high-profile speech at the annual Jackson Hole symposium, Fed Chair Kevin Warsh said that the inflationary backdrop had not showed “meaningful” improvement, fuelling speculation that US interest rates could rise as early as September. The annualised rate of inflation eased from 3.5% to 3.4% in July, but remained significantly above the Fed’s 2% target. Gasoline prices have risen by 24.6% over the 12 months, according to the Bureau of Labour Statistics.
Dax hits new highs: during August, European Central Bank (ECB) President Christine Lagarde warned that the pillars that had supported Europe’s post-war growth are “eroding” and said: “Firms invest less when capital is seen as less safe, weighing on output and consumption”. The minutes from the ECB’s July rate-setting meeting were published, and indicated some appetite among policymakers for a rate increase, fuelling expectations of an upward move in September. The Dax Index rose by 2.5% in August and reached a new record .
BoJ to tighten? The yield on Japan’s benchmark bond reached 2.95% during August, driven up in part by concerns government spending. Ongoing inflationary pressures look likely to put pressure on the Bank of Japan to tighten rates; the annualised rate of consumer price inflation climbed from 1.6% in June to 1.9% in July. The Nikkei 225 Index rose by 3.8% over the month, boosted by its exposure to AI-related and banking stocks.
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