Morning Bid: Bonds' reality check

• U.S. 10-year Treasury yields rose to approximately 4.80%, the highest since President Trump's return to office, while Japanese 10-year bonds broke above previous levels for the first time since 1996 and German Bund yields hit 15-year highs
• Broadcom highlighted the AI infrastructure boom by forecasting its AI chip revenue will double to roughly $230 billion by fiscal 2028, contributing to upward pressure on long-term interest rates
• Markets are pricing in a 75% probability of a Fed rate hike at the September 15-16 meeting, up from one-in-three odds before Chair Kevin Warsh's Jackson Hole speech, as inflation remains the central focus over employment

Market Summary: Bond Yields Surge to Multi-Decade Highs

Key Developments

Global bond markets experienced significant turbulence this week, with yields hitting multi-decade highs across major economies. The U.S. 10-year Treasury yield climbed to approximately 4.80%, reaching its highest level since President Trump's return to office. Japanese 10-year government bonds surpassed 2% for the first time since 1996, while German 10-year Bunds hit 15-year highs. British 30-year gilt yields reached levels unseen since 1998.

Market Drivers

The sell-off reflects concerns over rising deficits, elevated inflation, and substantial AI-driven corporate debt issuance. Federal Reserve Governor Chris Waller attempted to calm markets Thursday, suggesting the central bank should "give disinflation a chance" and consider holding rates steady. However, markets are pricing in a 75% probability of a rate hike at the September 15-16 Fed meeting, up from 33% before Chair Kevin Warsh's Jackson Hole speech.

Corporate Highlights

Broadcom reported disappointing earnings despite projecting AI chip revenue to double to roughly $230 billion by fiscal 2028. Nvidia announced a $13 billion acquisition of a developer platform, signaling confidence in open-source AI models.

Energy and Currency Markets

Middle East tensions pushed Brent crude higher, with the benchmark on track for a 6% weekly gain. The Japanese yen weakened 2% this week to 156-per-dollar, reflecting expectations for Bank of Japan rate hikes. The Trump administration unveiled a controversial Venezuela oil deal giving Washington a 35% equity stake in North American Blue Energy Partners.

Outlook

August nonfarm payrolls expected to increase by 56,000, following July's 23,000 decline.