A violent global bond selloff, a French fiscal shock and a five-session dollar rally all cracked late in the week when US payrolls grew just 29,000.

The long end ran — until the labour market stopped it

The week opened with the global bond selloff resuming: ten-year Treasury yields were marked at 5.20% on Monday morning with two-years at 4.90%, and the move accelerated from there. By Tuesday the 10-year had touched 5.24% intraday and the 30-year a post-2004 high; by Thursday morning the 10-year printed above 5.30% for the first time since 2007 and the long bond reached 5.62%, the highest since 2002. The strain was visible in credit, where CCC-rated US corporate spreads crossed 1,000bp over Treasuries for the first time since the March 2023 regional banking crisis. Friday’s payrolls report reversed the front end hard — two- to seven-year yields fell at least 10bp — leaving ten-years back around 5.24% and a decisively steeper curve.

A split Fed, and data that argued both ways

Markets began the week fully pricing at least one more 25bp Fed hike by year-end. That conviction eroded in stages: John Williams’ “no need for urgency” cut October odds from roughly 70% to barely above 50%; September consumer confidence collapsed to 81.9 against 89.0 expected; and benchmark-revised August core PCE came in at 0.2% m/m and 3.0% y/y versus 3.3% penciled in. Hawkish counterweights kept arriving — ADP private payrolls at 90,000, Q2 GDP revised up to 2.2% annualised, and an ISM manufacturing prices index that leapt to 77.9. October hike odds were down to roughly 26% before payrolls landed at 29,000 against +90k expected, with unemployment ticking up to 4.2%. Officials ended the week openly divided, with Lorie Logan still arguing for at least 50bp more while Philip Jefferson and Michelle Bowman saw no urgency.

France becomes Europe’s pressure point

Europe’s story shifted from inflation to credit. Hot flash September CPIs — Germany 3.3%, France 3.4%, Italy 4.1% y/y — pushed pricing toward ECB hikes of roughly 3.25% over the coming year, but the sharper move was in sovereign risk. French ten-year yields reached 4.96%, the highest since 2002, the OAT-Bund spread widened beyond 140bp to its widest since 2012, and French CDS hit its priciest since 2013, with the stress spilling into BTPs and credit. Bank equity bore it: the STOXX banks index fell 3.90% on Thursday and the STOXX 600 1.30%. The franc became the hedge of choice, EUR/CHF sliding to a two-month low of 0.92929. The UK ran a parallel thread, with 30-year gilt yields topping 6% for the first time since 1998.

The dollar’s run, and a yen market waiting for action

Rising yields and firmer oil powered five consecutive sessions of dollar gains. EUR/USD printed 1.1312 on Wednesday, its lowest since May 2025, then broke the 1.13 area to trade as low as 1.1216; sterling fell to a three-month low of 1.3198. The break triggered a scramble for protection — one-week EUR/USD implied volatility jumped to 8.00 and leveraged accounts paid aggressively for euro downside. Then payrolls hit, and the dollar index swung from a 0.6% gain at Thursday’s high to a 0.3% decline. The yen spent the week caught between rhetoric and reality: repeated official warnings on undervaluation lifted it to 156.72 on Monday, a less hawkish BOJ summary of opinions sent USD/JPY to 158.45 on Thursday, and Japan’s finance ministry confirmed no intervention took place in September. It ended at 157.02.

Oil kept the inflation question open

Energy, not labour, drove the first half of the week. Brent gained 3% to $107.50 on Monday after Donald Trump rejected Iran’s seven-day ceasefire proposal, then retreated toward $103 as Middle East flows recovered to nearly 80% of pre-war levels, with Saudi pipeline capacity restored and Red Sea exports resuming. Friday brought a 4.37% rally back above $102 on reports the Pentagon was sending a third carrier strike group and 9,000–10,000 additional troops. Longer-dated contracts kept making new highs throughout, a market pricing elevated energy costs well beyond the immediate disruption. That backdrop shaped policy elsewhere: the RBA hiked 25bp to 4.60%, a 15-year high, citing Middle East energy costs, before Australian CPI driven almost entirely by a 14.8% fuel rise pushed the Aussie below 0.70.

What to watch this week

• Whether the FOMC’s remaining 2026 hike survives the payrolls miss, with October pricing cut sharply and officials publicly split between “at least 50bp more” and “no urgency”.
• ECB minutes, and whether firmer euro-area inflation sustains pricing for further hikes while financial conditions tighten.
• France’s plan to narrow the budget deficit to 5% of GDP from 5.4% — a debate that risks toppling the prime minister — and the direction of the OAT-Bund spread.
• Whether Tokyo’s verbal warnings on yen undervaluation translate into actual intervention, after officials confirmed none took place in September.
• US-Iran talks, described as at an impasse with the Strait of Hormuz still shut, alongside Turkey- and UN-brokered Black Sea ceasefire talks in early October.
• Gilts and UK fiscal risk, with 30-year yields above 6% and budget hedging demand still elevated.

This commentary is for information purposes only and does not constitute investment advice or an offer or solicitation to buy or sell any financial instrument. Past performance is not indicative of future results.