Bond Market Stabilizes Following Weak US Jobs Report and Successful Japanese Debt Auction

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UK 30-year yields are dipping

UK long-term borrowing costs have fallen a little this morning, as the bond market panic eases.

The yield, or interest rate, on 30-year gilts has dipped by two basis points (0.02 percentage points) to 5.58% this morning.

Last night they closed at 5.6%, having hit a 27-year high of 5.75% on Wednesday morning.

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Airline shares fall after Jet2 predicts slower earnings growth

Budget airline Jet2 has spooked the travel industry this morning, by predicting weaker earning growth than expected.

Jet2 told investors that it expects its earnings, on an EBIT basis, to be towards the lower end of the analysts’ consensus range.

It also cautioned that it has “limited visibility” about prospects for this year, as holidaymakers are making bookings later, meaning it still has much of its winter seat capacity still to sell.

Steve Heapy, Jet2’s chief executive officer, says:

“Although we are currently operating in a difficult market, we have a proven business model, a loyal customer base, a flexible approach to capacity management and of course our multi award-winning customer service.

We believe that these factors provide the foundation for a solid financial result this year and for further profitable growth in the years to come.”

Shares in Jet2 tumbled 23% at the start of trading, and are now dow 14%.

Other airlines are suffering too – easyJet have fallen by 4.2%, while British Airways’ parent company IAG has lost 2.3%.

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European stock markets have opened calmly too.

In London, the FTSE 100 share index is down by just 3 points (-0.04%) at 9174, following some choppy sessions which saw losses on Tuesday and a partial recovery on Wednesday.

Germany’s DAX dipped by 0.27% at the open in Frankfurt.

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Updated at 09.11 CEST

Panmure Liberum: UK must show ‘firm hand’ to keep bond yields under control

Signs of calm in the bond market will be warmly welcomed in the UK Treasury.

The jump in Britain’s bond yields risks widening the ‘black hole’ which Rachel Reeves is expected to fill in the autumn budget scheduled for 26 November.

That could mean either spending cuts or tax rises to persuade the Office for Budget Responsibility that the chancellor is keeping within the fiscal rules.

Simon French, chief economist at Panmure Liberum, arugues that UK fiscal and monetary policymakers must demonstrate “a firm hand on the tiller” in the next few weeks, to help sooth UK gilt yields.

He writes:

Coordination of these policymakers will be key, and we are modestly encouraged by Treasury language subtly shifting to the task of controlling inflation.

Saying it though is the easy bit. Making the tough decisions to enable it is far harder.

The jury is out on whether the UK government – and its backbenchers – have the backbone, and the Gilt market knows it.

French also flags that since the government’s Spring Statement earlier this year, the UK’s ten-year yield has been the highest in the G7, “the longest such outlier run in modern market history”:

A chart showing UK 10-year bond yields vs G7 Photograph: Panmure Liberum

That suggests that domestic factors, as well as global concerns, have ben pushing up UK bond yields.

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Analyst: “The bond market rout could be over”

There is a sense of calm in European and US markets today, reports Kathleen Brooks, research director at XTB, as the recovery in global bond yields on Wednesday helps sentiment.

Brooks writes:

There are signs that the bond market rout could be over. Global government bond sales have been strong this week and have not been impacted by bond market volatility. Added to this, some governments including the UK’s are talking once more about public sector spending cuts, which may boost demand for Gilts in the short term.

Risks are still looming for the bond market, for example, Monday’s confidence vote in the French government. If the government collapses, then French bonds will be in the spotlight. Ahead today, there is a massive $11bn auction of French government debt. We will be watching this closely to gauge demand and to see if political turmoil impacts demand.

That auction is scheduled for 10am UK time….

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Trump asks US supreme court to uphold his tariffs

Uncertainty over Donald Trump’s trade wars are another factor hitting bond prices this week.

Last Friday’s court ruling that Trump’s tariffs are illegal has raised the prospect that the White House might have to refund billions of dollars paid by Americans on imported goods, as well as losing out on future revenues.

As the White House has been, ahem, trumpeting the rising income from tariffs, that would be a blow.

The prospect that America might need to borrow even more money to cover for a tariff shortfall could have weighed on bond prices this week, pushing up yields.

Overnight, Trump asked the US Supreme Court to uphold his global tariffs on a fast-track schedule. This means the nine members of the Court will now have the finnal say on whether Trump can raise the US’s effective tariff rate to its highest in around a century.

If the US government loses the case, some of the trade deals struck in recent months could also come unstuck.

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Introduction: Relief as Japan’s debt auction proceeds smoothly

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

There are signs that calm may be returning to the global bond market, after Tuesday’s sell-off drove government borrowing costs to multi-year highs.

Earlier today, an auction of 30-year Japanese government bonds proceeded smoothly, helping to support Japan’s debt prices.

Encouragingly for Tokyo, demand for its long-term debt held up pretty well – the bid-to-cover ratio, which measures the amount of bids against the amount of debt on offer, was 3.31, only slightly below the 12-month average of 3.38.

This has helped to push down the yields, or interest rates, on Japan’s debt in the bond market – a relief, after long-term yields hit record highs earlier this week.

Hirofumi Suzuki, a strategist at SMBC, explained:

Given the sharp selloff in the 30-year yesterday, short-covering had been underway from the morning session, and the auction ended up passing smoothly.

“That said, political uncertainty in Japan also continues, so upward pressure on Japanese yields is likely to persist.”

Long-term bonds are under pressure due to concerns about the size of government debt, political obstacles to spending cuts, and structurally higher inflation.

Yesterday, the yields on UK and US long-term debt both fell back, bringing some relief after Britain’s 30-year borrowing costs hit the highest level since 1998.

Bond prices recovered after disappointing US job openings data was released, prompting investors to predict faster interest rate cuts. It showed that for the first time in more than four years, there are fewer open jobs in America than there are job seekers.

Jim Reid, market strategist at Deutsche Bank, explains:

The global bond selloff finally paused for breath yesterday, as weak US data meant investors ramped up their expectations for Fed rate cuts this year.

The main catalyst was the JOLTS report for July, which showed that job openings fell to a 10-month low and exacerbated fears about a labour market slowdown.

The number of job openings fell to an estimated 7.18m at the end of July, down from 7.36m the month before.

Investors will be watching the latest employment data from the US, due later today, for further signs that its labour market is cooling.

The agenda

• 9am BST: UK car sales data for August

• 9.30am BST: UK construction PMI for August

• 12.30pm BST: US Challenger job cuts report

• 1.30pm BST: US jobless claims

• 1.15pm BST: US ADP private payrolls data

• 3pm BST: US service sector PMI

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How might a resilient US economy impact the Federal Reserve’s monetary policy and subsequently, bond yields?

Bond Market Stabilizes Following Weak US Jobs Report and Triumphant Japanese Debt Auction

US Jobs Report & initial Market Reaction

The bond market experienced a period of volatility in late August and early September, largely driven by expectations surrounding the Federal Reserve’s monetary policy. however, a weaker-than-expected US jobs report released on September 3rd, 2025, triggered a meaningful shift in sentiment. The report indicated a slowdown in hiring, fueling speculation that the Fed may pause or even reverse its tightening cycle.

Non-Farm Payrolls: The report showed an increase of only 80,000 jobs, substantially below the consensus estimate of 170,000.

Unemployment Rate: The unemployment rate ticked up to 3.9%,a slight increase that added to the dovish narrative.

Wage Growth: While wage growth remained moderate, it wasn’t strong enough to offset concerns about a cooling labor market.

Initially, this news led to a rally in US Treasury bonds, pushing yields lower. The 10-year Treasury yield fell sharply, briefly dipping below 4.20%, as investors priced in a less aggressive Fed. This initial reaction demonstrated the market’s sensitivity to economic data and its anticipation of potential policy changes. Treasury yields, bond prices, and interest rate expectations were all key drivers of this movement.

Japanese Debt Auction Success & Global Impact

concurrently, Japan successfully auctioned off a significant amount of new government bonds (JGBs).This auction was closely watched by global investors, as concerns about Japan’s fiscal sustainability and the potential for upward pressure on Japanese interest rates have been mounting.

The strong demand at the auction, despite recent adjustments to the Bank of Japan’s yield curve control policy, signaled continued investor confidence in Japanese debt. This success had a stabilizing effect on the global bond market for several reasons:

1. Reduced Tail Risk: A failed JGB auction could have triggered a broader sell-off in global government bonds. The successful outcome alleviated this tail risk.
2. Safe Haven Demand: Japan is often viewed as a safe haven for investors during times of global economic uncertainty. Strong demand for JGBs reinforces this perception.
3. Cross-Market Correlation: The performance of the JGB market is often correlated with other major bond markets,including the US and Europe. A stable JGB market contributes to overall stability. JGB auctions,safe haven assets,and global bond yields are all interconnected.

Impact on Different Bond Sectors

The combined effect of the US jobs report and the Japanese debt auction was felt across various bond sectors:

US Treasuries: As mentioned, US Treasuries benefited from the dovish shift in Fed expectations. Longer-dated bonds experienced the most significant gains.

Corporate Bonds: Investment-grade corporate bonds also rallied, as the decline in Treasury yields lowered their risk-free rates. Though, high-yield bonds saw more muted gains, reflecting concerns about the economic outlook. Corporate bond spreads remained relatively stable.

Municipal Bonds: Municipal bonds, often sensitive to interest rate movements, also saw increased demand.

Emerging Market Bonds: Emerging market bonds experienced a mixed reaction. While lower US interest rates generally benefit emerging markets, concerns about global growth weighed on sentiment. Emerging market debt performance varied significantly by region.

Factors Contributing to Stabilization

Beyond the immediate triggers,several underlying factors contributed to the stabilization of the bond market:

Technical Factors: Some analysts pointed to technical factors,such as short covering and repositioning by hedge funds,as contributing to the rally.

Inflation Expectations: While inflation remains above the Fed’s target, there are signs that it is indeed moderating. This has helped to anchor inflation expectations, reducing pressure on bond yields.Inflation expectations are a critical driver of bond market behavior.

Geopolitical Stability: A relative lull in geopolitical tensions also contributed to a more stable market surroundings.

Looking Ahead: Key Risks and opportunities

Despite the recent stabilization, the bond market remains vulnerable to several risks:

Resilient US Economy: If the US economy proves more resilient than expected, the Fed may be forced to maintain its hawkish stance, putting upward pressure on yields.

Geopolitical Escalation: A sudden escalation of geopolitical tensions could trigger a flight to safety, driving up demand for government bonds.

Inflation Re-acceleration: A resurgence of inflation could force central banks to tighten monetary policy, leading to a sell-off in bonds.

Though, there are also opportunities for investors:

Duration Extension: Investors may consider extending the duration of their bond portfolios to benefit from potential further declines in yields.

Credit Selection: Careful credit selection can help investors identify undervalued corporate bonds with strong fundamentals.

Diversification: Diversifying across different bond sectors and geographies can help mitigate risk. Bond portfolio strategy and fixed income investments