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Japan’s 10-Year Bond Yield Tops 3% for First Time Since 1996 as Yen Slides

By
Samuel Nwite
-
0

Japan’s benchmark 10-year government bond yield climbed above 3% on Tuesday for the first time in three decades, as markets increased bets on further monetary tightening and investors demanded higher compensation for the country’s growing fiscal risks.

The yield rose 6 basis points to just above 3%, its highest level since 1996, adding to pressure on Tokyo as it prepares its next budget and grapples with the rising cost of servicing its enormous public debt.

The move came as U.S. Treasury Secretary Scott Bessent signaled that Washington expects Japan to take steps to support the yen, including potentially higher interest rates from the Bank of Japan.

“I have information that the market doesn’t have. And it’s my belief that the Japanese government and that the BOJ will do the things that will lead to a stronger yen,” Bessent told CNBC on Monday.

A U.S. official told Japanese broadcaster NHK that Bessent had emphasized the need for Tokyo to demonstrate a credible path toward fiscal sustainability and pursue further rate increases during separate meetings with Finance Minister Satsuki Katayama and BOJ Governor Kazuo Ueda.

Katayama said Japan and the United States had agreed to continue coordinating efforts to achieve “orderly” movements in the yen and remained prepared to respond to “disorderly” currency moves, according to Reuters.

The comments come as the yen weakens toward levels that could force Tokyo to consider another intervention. The currency was last trading around 160.1 per dollar, breaking above the psychologically important 160 level for a third consecutive session.

Japan and the United States conducted a rare coordinated intervention in late July to support the yen, but the currency has since surrendered much of those gains. A prolonged decline in the yen is becoming increasingly problematic for Tokyo because it raises the cost of imported energy, food and other goods, adding to inflationary pressure on Japanese households.

The bond market is now pricing a greater probability of a BOJ rate increase as early as September. Takuji Okubo, managing director at Japan Macro Advisors, said investors may also be reassessing where Japanese rates will ultimately settle in the current tightening cycle.

“Japan’s higher borrowing costs on Tuesday reflect a rising chance of a Bank of Japan rate hike in September, and the market perhaps adjusting the terminal rate from 1.5% to 1.75% or higher,” Okubo told CNBC.

The BOJ’s benchmark policy rate currently stands at 1%.

The surge in Japanese yields weighs beyond Japan because of the country’s position at the center of global capital markets. Japan is the largest foreign holder of U.S. government debt, meaning any decision by Tokyo to support the yen through foreign-exchange intervention could have implications for the U.S. Treasury market.

Japan typically acquires dollars when intervening to weaken the yen and can sell dollar-denominated assets, including U.S. Treasuries, when supporting its currency. A substantial liquidation of Treasuries could add to upward pressure on U.S. long-term yields at a time when global bond markets are already facing concerns over inflation, government borrowing and elevated debt issuance.

The latest increase in Japanese yields has also occurred against a deteriorating global inflation backdrop. The resumption of military hostilities between the United States and Iran over the weekend has revived concerns about energy supplies and inflation, putting additional pressure on government bonds around the world. Bond prices move inversely to yields.

For Japan, however, the rise in yields also marks another stage in the country’s departure from the ultra-low interest-rate environment that defined its economy for decades. A 3% 10-year borrowing cost would have been almost unthinkable during the years when Japan struggled with persistent deflation and negative interest rates.

Higher yields now indicate that investors increasingly expect Japan to operate in an environment of sustained inflation and positive real economic adjustments.

“A 3% 10-year borrowing cost is high in historical perspective, but it just means another step for Japan in leaving deflation in the past and joining the rest of the world where 2% inflation is an achievable normal,” Okubo said.

The challenge for policymakers is balancing those forces. Higher rates could support the yen and help contain imported inflation, but they would also increase borrowing costs for the government, households and companies. With Japan carrying one of the world’s highest public-debt burdens relative to economic output, even modest increases in interest rates can have significant fiscal consequences.

That tension is likely to keep Japanese bonds, the yen and BOJ policy closely watched by global investors. A further rise in Japanese yields could also encourage domestic investors to redirect capital away from overseas markets and toward Japanese assets, potentially affecting global bond and currency markets.

The combination of a weakening yen, rising bond yields and pressure from Washington leaves Tokyo’s policymakers with a difficult policy equation: support the currency without destabilizing financial markets, while tightening monetary policy without placing excessive strain on an already heavily indebted government.

Global Bond Yields Surge, Oil Rises, Gold Dips As Middle East Conflict Revives Inflation Fears

By
Samuel Nwite
-
0

Government bond yields surged across major markets on Tuesday, with borrowing costs in Japan and the United Kingdom reaching multi-decade highs as renewed hostilities in the Middle East pushed energy prices higher and revived concerns that inflation could remain elevated.

The selloff extended across the United States, Europe and Asia, highlighting a growing challenge for central banks and governments already grappling with persistent price pressures, large fiscal deficits and heavy borrowing needs.

The U.S. 10-year Treasury yield rose 3 basis points to 4.788%, its highest level in 20 months. The move came after Federal Reserve Chair Kevin Warsh’s hawkish comments last week reinforced expectations that U.S. interest rates may need to remain higher for longer, particularly if inflation fails to move decisively toward the Fed’s 2% target.

Japan saw one of the sharpest moves. The benchmark 10-year Japanese government bond yield climbed more than 6 basis points to 3%, a level not seen since 1996. The two-year yield also reached 1.81%, its highest since 1995.

The increase marks a significant shift for Japan, where government bond yields spent years at exceptionally low levels as the Bank of Japan maintained ultra-loose monetary policy. The rise now reflects expectations that the central bank may need to continue raising rates as underlying inflation approaches its 2% objective.

In Britain, the 10-year gilt yield jumped more than 9 basis points to 5.234%, its highest since June 2008. The 30-year yield also climbed 9 basis points to 5.886%, its highest since March 1998.

German 10-year Bund yields, a key benchmark for eurozone borrowing costs, rose more than 3 basis points to 3.355%, a fresh 52-week high. The two-year Bund yield reached 2.950%, its highest since July 2024, while France’s two-year borrowing cost rose to its highest level since April 2024.

The synchronized rise in yields is significant because it indicates that investors are demanding greater compensation to hold government debt across economies, rather than the pressure being confined to one country’s fiscal or monetary outlook.

Oil Shock Adds to Inflation Concerns

The latest bond selloff was intensified by renewed U.S.-Iran hostilities around the Strait of Hormuz, a critical route for global energy supplies.

Brent crude, the global benchmark, rose about 2.2% to $92.38 a barrel, while West Texas Intermediate gained 2.61% to $88.05. Higher energy prices can feed directly into consumer inflation while also increasing production and transportation costs across the economy.

The combination presents a difficult policy environment for central banks. Higher oil prices can keep inflation elevated when economic growth may be weakening, limiting the scope for policymakers to cut interest rates.

For bond investors, the concern is especially acute in the United States because inflation risks are emerging alongside a large federal deficit and substantial government borrowing requirements.

Treasury Secretary Scott Bessent sought to play down concerns about the rise in U.S. yields, saying Monday that the U.S. bond market remained “the best performing market” in the world. He also pointed to Fitch Ratings’ reaffirmation of its AA+ rating on U.S. government debt.

But Steve Englander, head of global G10 FX research and North America macro strategy at Standard Chartered, took a less sanguine view.

“I think ‘best performing’, as Bessent said, isn’t the same as well performing,” Englander told CNBC. “Everybody has a deficit problem. I don’t think there’s any reason to cheer.”

Englander said the prolonged Middle East conflict, combined with the impact of a Supreme Court tariff ruling that he estimated removed about 40% of additional tariff revenue, would keep pressure on the U.S. bond market.

Warsh Raises The Stakes for The Fed

The rise in Treasury yields also comes days after Warsh signaled that the Federal Reserve could raise interest rates if it fails to gain sufficient confidence that inflation is moving toward its 2% target.

At the Jackson Hole symposium on Friday, Warsh said the Fed would “have work to do” if underlying inflation was not moving toward its objective “clearly and at sufficient speed.” The comments marked his strongest indication so far that additional monetary tightening could be necessary. Markets have subsequently increased bets on a September rate hike.

Higher Treasury yields can weigh on equities by making bonds more attractive relative to stocks and increasing the discount rate applied to future corporate earnings. They can also raise financing costs for businesses and households, potentially slowing investment and consumption.

Gold Hit By Rising Yields

The global bond selloff also weighed heavily on gold. Spot gold fell 1.8% to $4,369.24 an ounce by 1003 GMT, its lowest level since August 19. U.S. gold futures declined 1.4% to $4,418.

Gold had climbed to a more than three-month high last week before dropping more than 3% on Friday following Warsh’s Jackson Hole remarks.

The relationship between gold and bond yields has become increasingly important. Higher Treasury yields increase the opportunity cost of holding gold, which does not generate interest income. Rising real yields can therefore weaken demand for the metal, particularly among institutional investors.

Saxo Bank analyst Ole Hansen said global bond yields were continuing to rise after Warsh’s hawkish comments, adding pressure to gold prices.

Other precious metals also fell, with silver down 2.8% at $64.64 an ounce, platinum declining 1.9% to $1,760.13 and palladium slipping 2.2% to $1,327.

Fiscal Pressure Compounds Monetary Risks

The bond selloff is occurring against a broader backdrop of rising government debt and fiscal deficits in major economies.

In the U.S., investors are assessing whether the Treasury can contain borrowing costs while financing a federal debt burden that has surpassed $40 trillion. In Britain, long-term yields are approaching levels that could increase the government’s debt-servicing costs and constrain fiscal policy.

The U.K. move also comes as Prime Minister Andy Burnham is reportedly considering legislation that would make it easier to bring struggling utilities into public ownership, according to The Guardian. The prospect of greater government involvement in the economy adds another dimension to investors’ assessment of Britain’s fiscal outlook.

For Japan, the rise in yields carries a different but equally important implication. The world’s most heavily indebted major economy is moving away from an era of near-zero interest rates, meaning higher borrowing costs could gradually increase the government’s debt-servicing burden.

The common thread across the major bond markets is that investors are confronting a combination of inflation risk, elevated energy prices, large fiscal deficits, and changing expectations for monetary policy.

That makes upcoming U.S. labor-market data particularly essential. Evidence of resilient employment alongside persistent inflation could strengthen the case for higher-for-longer interest rates and keep pressure on government bond yields upward. A deterioration in the labor market, however, could revive expectations for monetary easing and provide some relief to bonds.

SpaceX Moves Into Gas Turbine Manufacturing As AI Boom Intensifies U.S. Power Crunch

By
Samuel Nwite
-
0

SpaceX is moving deeper into power generation by building a factory to manufacture gas turbine blades and vanes, as the rapid expansion of artificial intelligence infrastructure intensifies competition for electricity and exposes bottlenecks in the equipment needed to generate it.

Elon Musk, SpaceX’s CEO, said on Saturday that the rocket company plans to produce its own turbine components, arguing that solar power alone will not be sufficient to support the company’s rapidly expanding AI infrastructure.

SpaceX and Tesla are already racing to build large solar panel factories, Musk said in a post on X, but he expects natural gas to remain necessary to supplement solar generation for several years.

“Natural gas will still be needed to supplement and bootstrap solar for several years,” Musk said.

He added that SpaceX would manufacture its own gas turbine blades and vanes, components that are technically difficult and time-consuming to produce.

“By doing in-house casting at SpaceX, we can accelerate natural gas turbines coming online by up to 18 months, which is a profound game-changer,” Musk said.

The Information first reported SpaceX’s plans. The company has also begun advertising positions for a “blades and vanes foundry” at its facility in Bastrop, Texas, where it manufactures Starlink terminals.

One SpaceX job description described electricity generation as a major constraint on the expansion of AI, saying: “Power generation poses one of the key challenges that could slow the worldwide adoption of AI.”

The move shows that the AI boom is increasingly forcing technology companies to address infrastructure problems far beyond chips and data centers. Electricity generation, transmission capacity, transformers, cooling systems, and power-generation equipment are becoming critical parts of the AI supply chain.

The rapid construction of data centers across the United States has placed additional pressure on electricity networks, with technology companies competing for access to power as they seek to deploy powerful AI systems.

Natural gas has emerged as one of the more immediate solutions because gas-fired turbines can provide continuous electricity and can be deployed alongside intermittent renewable sources. But demand for turbines has also surged, creating another bottleneck.

OpenAI, Amazon and Microsoft have entered partnerships involving natural gas power generation for data centers, while Meta’s Hyperion data center in northern Louisiana is expected to require 10 new gas power plants.

The competition for turbines has become so intense that some aerospace companies are exploring the conversion of jet engines into power-generating turbines for data-center applications.

SpaceX has already turned to mobile gas turbines to supply electricity to its Colossus data centers in Mississippi and Tennessee. Those facilities have generated local complaints over noise and pollution, adding environmental and community opposition to the logistical challenges associated with rapid AI infrastructure expansion.

For SpaceX, producing turbine components internally could reduce its dependence on equipment suppliers and potentially shorten the time required to bring additional generation capacity online. The strategy also fits with Musk’s broader approach of vertically integrating critical components when external supply cannot keep pace with the company’s expansion plans.

The scale of SpaceX’s AI ambitions makes access to power particularly important. The company is investing heavily in AI infrastructure as it develops increasingly capable models and computing systems. SpaceX spent about $16 billion on AI infrastructure in the second quarter of 2026, according to the report, with executives telling investors that spending would remain at “very similar” levels over the following two quarters.

That spending matters because the economics of AI depend not only on access to advanced processors but also on the ability to secure enough electricity to operate them. As computing clusters grow, power requirements can reach levels comparable to those of major industrial facilities.

Therefore, industry analysts see SpaceX’s decision to manufacture turbine blades as an indication of more than an expansion into an adjacent industrial business. It is believed to be a signal that AI companies are increasingly being pushed upstream into energy infrastructure as electricity becomes a strategic constraint on computing capacity.

The development also highlights a potential shift in the AI industry’s competition. Companies that can secure generation equipment and electricity faster are expected to deploy AI computing capacity ahead of rivals, while those unable to overcome power constraints could face delays even when chips and data-center sites are available.

This means bringing turbine manufacturing in-house could give SpaceX greater control over that critical bottleneck as it pursues an aggressive expansion of AI computing. The approach, however, also means taking on the complexity and capital requirements of manufacturing equipment far outside its traditional rocket and spacecraft operations.

Global Factory Activity Strengthens As AI Demand Powers Asian Chip Production and European Recovery

By
Samuel Nwite
-
0

Global manufacturing activity strengthened in August, with the artificial intelligence boom driving demand for semiconductors and computing equipment across Asia while a recovery in European orders pushed the euro zone’s factory sector to its strongest level in more than four years.

The improvement offers a more positive picture for global industry, although the outlook remains clouded by the prolonged U.S.-Iran conflict, disruptions around the Strait of Hormuz and rising input costs.

The euro zone recorded one of the strongest improvements. S&P Global’s Eurozone Manufacturing Purchasing Managers’ Index rose to 52.7 in August from 51.9 in July, marking its highest reading since May 2022. The figure was slightly below the preliminary estimate of 52.8 but remained comfortably above the 50 mark that separates expansion from contraction.

Germany led the recovery, with its manufacturing PMI climbing to 54.3, its strongest reading in more than four years. France also returned to expansion, with its PMI rising to 51.1 from below 50 in July.

The improvement was not uniform across the region. Italy recorded its first manufacturing contraction since January, while Spain also remained in contraction territory, suggesting that the euro zone’s recovery is still uneven.

“The resilience story is still going on,” said Carsten Brzeski at ING.

He said some European manufacturers were benefiting from the disruption affecting Asian competitors as the closure of the Strait of Hormuz altered global trade flows.

“It still reflects the fact European manufacturing companies, at least some of them, benefited from the fact Asian competitors are hurt more by the closure of the Strait of Hormuz,” Brzeski said.

The shipping disruption has weighed heavily on manufacturers because the Strait of Hormuz carried about a fifth of global oil supplies before the war began in late February. Efforts by Qatar and Oman to broker an agreement that would reopen the waterway have so far failed to produce a breakthrough.

For European factories, however, the stronger August readings come against a difficult energy backdrop. Higher oil and gas prices raise production and transportation costs, creating a risk that the manufacturing recovery could lose momentum if the conflict continues to disrupt energy markets.

Britain also remained in expansion, although its manufacturing PMI slipped to 51.7. A more encouraging feature of the British survey was employment, with factories increasing hiring at the fastest pace in more than two years as production requirements increased.

AI Drives Asian Manufacturing

Asia presented a stronger picture, with China, Japan and South Korea all recording manufacturing growth as demand for AI infrastructure, semiconductors, computers and related equipment supported industrial production.

China’s RatingDog China General Manufacturing PMI, compiled by S&P Global, rose to 51.5 in August from 50.9 in July and exceeded the 51.0 median forecast in a Reuters poll.

The improvement points to the growing importance of AI-related demand in supporting China’s industrial economy. The picture remains fragile, however, as a separate official survey showed China’s broader factory activity remained in contraction.

Japan recorded an even stronger acceleration. Its manufacturing PMI rose to 54.9 from 54.5, the highest level since April, while new business expanded at its fastest pace since January 2018. The strength of new orders significantly indicates that the Japanese manufacturing recovery is being supported by actual demand rather than simply inventory rebuilding.

“Overall, the sector looks well placed to sustain its strong performance, particularly given demand linked to AI-related sectors,” said Annabel Fiddes, economics associate director at S&P Global Market Intelligence.

South Korea’s manufacturing PMI eased to 52.3 from 53.1 but remained above 50 for a ninth consecutive month. Separate trade data provided further evidence of the strength of the country’s technology exports.

South Korean exports surged 68.7% from a year earlier in August, extending their growth streak to 15 consecutive months. Semiconductor and AI-related products have been among the principal beneficiaries of the global technology investment cycle.

The contrasting regional performances highlight an increasingly important feature of the global manufacturing recovery: AI investment is creating a concentrated source of industrial demand even as conventional manufacturing remains exposed to trade tensions, energy costs and geopolitical disruptions.

For chipmakers and electronics manufacturers in Asia, the AI investment cycle is generating orders for advanced processors, memory, servers and networking equipment. That demand is helping offset weakness elsewhere in the industrial economy. For Europe, the recovery is coming from a different direction, with improving new orders and reduced competitive pressure providing some relief to manufacturers.

However, analysts believe the sustainability of the global upturn hangs on how strong AI demand remains to offset the drag from higher energy costs and geopolitical uncertainty. A prolonged disruption around the Strait of Hormuz could eventually feed into production costs worldwide, while any slowdown in technology investment would expose manufacturers that have become dependent on the AI spending cycle.

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