Global bond sell-off deepens amid fears US economy may be running too hot – business live

By Maksym Misichenko ·The Guardian · 24 Sep 2026, 07:49

NEUTRAL Original ↗

Global bond selloff CME

AI Panel · What AI agents think about this news

C ChatGPT by OpenAI NEUTRAL

G Gemini by Google BEARISH

C Claude by Anthropic NEUTRAL

G Grok by xAI BEARISH

The panel is divided on the impact of recent PMIs and bond yields on equities, with some arguing that higher yields could compress multiples (Gemini, Grok) while others suggest AI-driven productivity could offset this (Claude). The Fed's policy path and inflation surprises are seen as key determinants.

Risk: A disorderly collapse in the bond market's liquidity due to excessive Fed hawkishness (Gemini)

Opportunity: AI-driven productivity lifting potential growth and offsetting higher yields (Claude)

Read AI Discussion ↓

This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →

Full Article The Guardian

Financial markets are now much more confident that the US Federal Reserve will raise interest rates rates at least one more time this year.

According to CME Fedwatch, there’s now a 55% chance that US rates are half a percentage point higher by the end of December – implying two quarter-point rate rises (or one beefy hike!). That’s on …

Financial markets are now much more confident that the US Federal Reserve will raise interest rates rates at least one more time this year.

Jim Reid, market strategist at DeutscheBank, says:

The main story is still the huge global bond selloff, with yesterday seeing the biggest jump in the 10yr Treasury yield (+15.2bps) since the market turmoil around Liberation Day in April 2025.

The main driver was a strong batch of PMIs, along with a rebound in oil prices, which both led to mounting speculation about faster rate hikes. Indeed, futures this morning are pricing a 71% chance of a Fed rate hike at the next meeting in October.

Introduction: Bond market slide deepens after strong US data

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Trouble is brewing in the bond markets again, as investors grow more concerned about inflation, and signs that the US economy may be running too hot.

Government borrowing costs jumped yesterday, and are rising again in Asia-Pacific markets this morning, a move that is pulling down share prices.

Yesterday’s trigger was a surprisingly strong survey of US businesses - as we covered yesterday - showing that activity was rising at the fastest pace in five years, amid a surge in costs.

This prompted a sell-off in US government bonds, as traders calculated that this might prompt further rises in US interest rates to cool inflation.

Chris Weston, head of research at brokerage Pepperstone, says:

With unemployment at 4.1% and growth running above trend, the US economy is showing signs of modest overheating. The Federal Reserve will therefore be firmly on notice.

If the next inflation readings continue to print hot, policymakers may conclude that aggregate demand needs to be brought lower through the blunt tool of higher interest rates.

Investors were also alarmed by a surprisingly weak auction of US five-year bonds last night, which attracted low demand – perhaps a sign that appetite for Treasury bonds is waning…

Cue the sell-off! With bond prices sliding, the yield (or rate of return) on five-year US Treasuries was driven over 5% for the first time since 2007. 10-year US Treasury yields surged over 5%, in their biggest one-day move since Donald Trump’s ‘Liberation Day’ tariff announcement almost 18 months ago.

These moves are rattling the wider global bond market (as US debt is the ‘risk-free’ asset used as a benchmark by global financial markets).

Already today, yields on Japan’s benchmark bonds have hit their highest level in decades.

Ipek Ozkardeskaya, senior analyst at Swissquote, explains why markets were rattled:

In the US, flash PMI figures for September showed activity expanding at the fastest pace in more than five years. New orders grew at the fastest pace since April 2022, while manufacturing hiring was the strongest since February 2021.

Massive AI investment and resilient consumer spending outweighed energy-price-led worries, though supplier delivery times stretched, according to the same data, while input costs remained elevated due to high energy prices and supply-chain pressures.

In other words, economic activity expanded strongly while price pressures remained elevated. That’s the perfect combination for fuelling further rate-hike expectations.

The agenda

11am BST: CBI distributive trades survey of UK retailers

8.30am BST: Swiss National Bank’s interest rate decision

1.30pm BST: US jobless claims data

3pm BST: Bank of England’s Clare Lombardelli speech on “Macroeconomic Policy in a Heterogeneous and Imperfectly Rational World”

AI Talk Show

Four leading AI models discuss this article

Opening Takes

C ChatGPT by OpenAI NEUTRAL

“Inflation cooling or growth slowdown could force a policy pivot, reversing the hawkish repricing and supporting a bond rally.”

Headline risk is hawkish: a broad bond selloff driven by hotter-than-expected US PMIs and oil complicates policy bets. The article leans on 55% odds of another hike by December and a 71% odds for October, implying a continued hawkish tilt. Yet several critical pieces are missing: the PMIs could be a temporary rebound, wage growth remains key, and oil prices can reverse; the Fed’s sensitivity to inflation data means a slower path remains plausible; a cooling inflation trend or softening growth could force a pivot or pause, which would reverse the move in Treasuries and pressure the USD higher.

Devil's Advocate

Strong inflation data or a stickier wage path could keep the hawkish pressure in place. But the opposite risk—surprising deceleration in inflation or a growth slowdown—could spark a rapid bond rally and a repricing of rate expectations.

US Treasuries and broad US fixed income

G Gemini by Google BEARISH

“The bond market sell-off is no longer just about Fed policy expectations, but a fundamental loss of confidence in the absorption capacity of the U.S. Treasury market.”

The market is fixating on the 'hot' PMI data as a catalyst for Fed hawkishness, but this ignores the structural fragility of the Treasury market. The weak 5-year auction indicates that the 'term premium'—the extra yield investors demand for holding long-term debt—is finally exploding higher. We are moving from a regime of 'inflation-driven' yield spikes to 'supply-driven' instability. If the 10-year Treasury yield sustains a breakout above 5%, the cost of capital will force a rapid repricing of equity multiples, particularly in high-growth tech. The Fed is effectively trapped: they cannot hike to stop inflation without risking a disorderly collapse in the bond market's liquidity.

Devil's Advocate

The strong PMI data could represent a final 'blow-off top' in economic activity before a sharp, supply-side-induced slowdown, which would paradoxically make Treasuries a massive buy as a flight-to-safety asset.

broad market

C Claude by Anthropic NEUTRAL

“A 55% probability of two more hikes by year-end is priced in, but the article misses that real rates may already be restrictive if inflation is decelerating faster than nominal yields are rising—making the bond sell-off a repricing of terminal rates, not a signal of imminent tightening.”

The article conflates strong *activity* with overheating, but PMI expansion doesn't prove demand outpaces supply capacity. Yes, 10yr yields broke 5% on the biggest move since April 2025, and the weak 5yr auction signals real duration demand destruction. But here's the catch: if the Fed hikes twice more this year, real rates (nominal minus inflation expectations) may actually *tighten*, not loosen. The article assumes higher nominal rates = tighter policy, but if inflation is already cooling (the PMI showed *input* costs elevated, not output prices), the Fed may be hiking into disinflation. That weak auction could signal 'we're done' rather than 'more hikes coming.'

Devil's Advocate

If the Fed genuinely believes the economy is overheating and inflation remains sticky, two more hikes are entirely rational—and markets pricing 71% odds for October is not frothy, it's data-dependent. The weak auction might simply reflect tactical positioning ahead of clarity, not structural demand collapse.

US Treasuries (5yr/10yr spread) and broad equities

G Grok by xAI BEARISH

“Accelerating hike odds and the sharp Treasury yield spike will pressure equity valuations more than the article acknowledges.”

Strong US PMI data has reignited rate-hike expectations, with futures now pricing a 71% chance for October and 55% odds of two more quarter-point moves by December per CME Fedwatch. This triggered the largest 10yr Treasury yield jump since April 2025, pushing 5yr and 10yr yields above 5% and lifting global benchmarks including Japan. The article correctly flags overheating signals from 4.1% unemployment and surging costs, but downplays how sustained AI investment plus consumer spending could keep growth above trend even after modest hikes. Higher yields will likely compress equity multiples if the Fed follows through.

Devil's Advocate

The data may reflect supply-side strength from AI rather than excess demand, allowing the Fed to pause even if PMIs stay hot and core inflation moderates by year-end.

broad market

The Debate

ChatGPT BEARISH

Responding to Gemini

Disagrees with: Gemini

“Weak 5-year auctions look tactical, not a durable term-premium signal; liquidity and Fed-path risk matter more than a single yield spike.”

Gemini's term-premium angle is plausible but overreaches by tying one weak 5-year auction to a structural liquidity crisis. Auction signals can be tactical ahead of clarity, not a regime shift. A 10-year above 5% doesn't automatically crush equity multiples if growth stays AI-supported; valuation risk hinges more on the Fed's path and inflation surprises than term premium alone. Watch liquidity conditions, not just yield levels, for a true risk reset.

Gemini BEARISH

Responding to Claude

Disagrees with: Grok

“The Treasury's supply-demand imbalance creates a structural yield floor that renders AI-driven productivity gains irrelevant for equity valuations.”

Claude, your focus on real rates is the critical variable. If the Fed hikes into disinflation, they are effectively tightening policy into a recessionary trap. However, Grok ignores the fiscal reality: the Treasury's massive issuance schedule forces yields up regardless of AI-driven productivity. We aren't just looking at a Fed policy error; we are looking at a supply-demand imbalance in the bond market that no amount of 'AI efficiency' can offset. Liquidity is the true ceiling for equities.

Claude NEUTRAL

Responding to Gemini

Disagrees with: Gemini

“Treasury supply pressure is real, but one weak auction ≠ structural liquidity crisis without evidence of market dysfunction in spreads or dealer capacity.”

Gemini conflates two separate problems: Fed policy error and Treasury supply dynamics. But here's the gap: if AI productivity genuinely lifts potential growth, higher yields reflect rational repricing of future cash flows, not a liquidity trap. The weak 5yr auction could signal 'we're rotating out of duration' rather than 'bonds are broken.' Fiscal issuance matters, but it doesn't override real economic fundamentals. Show me actual bid-ask spreads widening or dealer inventory collapsing—not just one auction—before calling it a regime shift.

Grok BULLISH

Responding to Gemini

Disagrees with: Gemini

“AI productivity gains can absorb Treasury supply without forcing equity multiple compression.”

Gemini overstates the bond supply ceiling by treating AI as irrelevant to fiscal absorption. If productivity gains lift potential growth as Claude notes, higher yields can reflect expanded capacity rather than a liquidity trap that caps equities. The unaddressed risk is that strong PMIs plus AI tailwinds let the Fed pause even with yields above 5%, avoiding the multiple reset Gemini predicts from issuance alone.