By Anna Szymanski
Oct 2 (Reuters) - The third quarter of 2026 won't be forgotten soon – even if bond investors might prefer to.
The last three months have seen government bond yields hit multi-decade highs, diesel prices reach all-time peaks and crude prices rise back above $100 a barrel as the Middle East conflict passed the seven-month mark.
And lest we forget, investors also learned of threats to the future of humanity itself amid news of rogue AI agents and dire warnings from tech leaders. Yet global
equities continued to grind higher in the period, fuelled by eye-popping corporate earnings growth, setting up a further test of resilience in the fourth quarter.
The bond market hogged much of the spotlight again this week. The benchmark 10-year US Treasury yield hit a 24-year high of 5.34% on Thursday, after rising more than 80 basis points in the third quarter. While a sharp rally on Thursday pushed down yields, it's still far too early to breathe a sigh of relief.
The pain during the week was also felt in European bond markets, particularly in France, where yields hit a 24-year high on Thursday, nearing the psychologically important 5% level, having recorded a jump of around 120 basis points in the third quarter. Fiscal concerns in the euro zone's second-largest economy helped blow out the spread between French and German sovereign bond yields to more than 140 basis points, the widest since 2012. This jarred European stocks and hit the euro.
In Japan, the 10-year government bond yield rose on Friday, nearing the 30-year high of 3.115% reached last week, after investors learned that inflation in Tokyo rose in September at the fastest pace in 10 months. Markets are betting the Bank of Japan will increase interest rates again in December.
Speaking of rate hikes, Australia's central bank was the latest to lift its policy rate on Tuesday, voting unanimously to increase it by 25 basis points to 4.60%, a 15-year high, with the market expecting more hikes to come.
Yet the week also brought one sign that the bond rout may be slightly overdone. The 2-year US Treasury yield edged lower midweek after New York Federal Reserve President John Williams on Tuesday said there was "no need for urgency" regarding another Fed rate hike in October.
The implied probability of an October rate rise subsequently tumbled from around 70% to below 50%. Williams' comments came amid the release of several relatively soft economic data points, including a drop in August job openings, dismal September consumer confidence numbers and, on Wednesday, a lower-than-expected 3.4% August annual inflation print from the personal consumption expenditures (PCE) price index, the Fed's preferred gauge.
Still, inflation remains well above the central bank's 2% target, and economic growth and corporate earnings both remain robust, suggesting that bonds may get squeezed even more in the coming months.
Shifting to politics, UK Prime Minister Andy Burnham gave a relatively bold speech at the Labour Party conference on Tuesday as he pledged to revive Britain's economy by tackling social care, housing and utilities and also hinted that a return to the European Union was not out of the question. While undoing Brexit seems unlikely, even the hint of it has the potential to boost sterling assets.
Moving further east, the conflict between the US and Iran may be heating up yet again. Washington is sending additional warships and troops to the region, according to a Wall Street Journal report, raising expectations that large-scale military strikes could resume after the US midterm elections in November.
Tehran is preparing a broad and forceful response, according to Reuters sources, while continuing a diplomatic push that Iranian officials have privately indicated is unlikely to succeed.
Brent crude settled up more than 4% on Thursday, but prices were down slightly early on Friday, as investors weighed elevated geopolitical risk with news that more oil is exiting the Gulf.
Diesel remains the real pain point, particularly following news that Chinese refiners were suspending October fuel exports. The Trump administration is pressuring France and Germany to release diesel from their emergency inventories or potentially face a US diesel export ban. European Union countries on Friday discussed a French proposal to release additional stockpiles in response, according to Reuters sources.
All is a bit quieter on the trade war front. China and the US announced early in the week that they would pursue tariff cuts on $60 billion worth of goods imported from each other, ranging from US corn to Chinese toys.
Over in tech, Reuters had an exclusive look at the Anthropic IPO prospectus, which showed that the AI giant – which is aiming for a $2 trillion valuation – saw its revenue surge 12-fold in 2025 to nearly $4.6 billion, while operating losses more than doubled to over $8 billion.
The prospectus also highlighted how dependent the young firm is on a small group of customers. And the document included a warning not commonly found in such filings: "catastrophic or existential risks to humanity." Good luck pricing that.
Staying in tech, Nvidia boosted its share buyback authorization by a record $150 billion, eclipsing Apple's $110 billion approval in 2024.
Finally, all eyes will be on the September US nonfarm payrolls data due later today. Consensus forecasts are for a gain of 90,000 jobs and a steady unemployment rate of 4.1%.
Next week will be light on economic releases, but investors will get more insight into the Fed's thinking with the release of the minutes from last month's FOMC meeting. Happy reading!
Before you head off, take a look at some questions ROI columnists have recently been exploring:
• Why can't the US grow its way out of its debt woes?
• What multi-trillion spending trend could reshape the global economy? (Hint: it's not AI.)
• Why isn't inflation data as straightforward as it seems?
• How is the energy transition beginning to feed itself?
• What warning sign is Bangladesh sending to the LNG market?
• What will cash-rich oil majors' strategy look like after the Iran war?
• Which Asian equity markets and sectors are most vulnerable to Fed tightening?
• Will the drop in global demand for seaborne coal offset the decline in supply?
• Are AI credit tremors a warning or a "buy" signal?
• How exactly do you price alumina?
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