Rates markets were highly volatile. 10-year US Treasury yields hit a 24-year high before retracing sharply. Concerns over France’s fiscal outlook drove a broader sovereign bond sell-off. The US dollar strengthened

Global bond markets remained volatile. The 10-year US Treasury yield reached a fresh 24-year high near 5.34% before retracing, while the most actively traded Brent crude contract gained almost 4% to above US$100 per barrel. Rates volatility and higher energy prices weighed on risk-sensitive assets. US equities are little changed but there were large falls across the major European indices with the Euro Stoxx closing 1.5% lower. The US dollar strengthened, pushing the NZD to a fresh low for the year near 0.5600.

European markets came under pressure as concerns over France’s fiscal outlook triggered a broader sovereign bond sell-off. France’s 10-year spread to Germany widened above 140bp, from around 100bp two weeks earlier, while spreads also widened in Italy, Belgium and Greece. The move weighed on the euro, European bank shares and broader equity markets, underscoring investors’ sensitivity to fiscal risks across the region.

The US manufacturing ISM edged down in September but remained consistent with solid expansion in the sector, with the underlying details generally firmer than the overall result. The index slipped 0.1 point to 54.5, slightly below the 55.0 consensus. New orders rose to 55.3 from 53.7, while the employment index increased to 52.7 from 51.2, pointing to further near-term gains in manufacturing payrolls. Prices paid climbed to 77.9 from 71.1, reflecting the recent rebound in commodity prices.

Price action was choppy across the intermediate and long end of the Treasury curve, while front-end yields declined steadily. The 2-year yield is 10bp lower as the market continues to pare expectations of near-term Fed tightening. The implied probability of an October hike has fallen to around 30%, with about 25bp of tightening priced across the two remaining FOMC meetings this year. The rally appeared to reflect the softer risk tone, despite the relative resilience of US equities. The 10-year yield traded in a wide range, reaching a fresh cycle high of 5.34% before falling sharply to 5.22%, driven predominantly by a fall in real yields.

The US dollar gained against most G10 currencies, with the DXY reaching a 2026 high as the sell-off in European bonds boosted demand for safe-haven assets. The yen and Swiss franc strengthened against the dollar, reflecting their defensive characteristics. The euro was the weakest G10 currency amid concerns about the impact of France’s fiscal and political uncertainty. EUR/CHF fell close to 1.5% in overnight trading.

The NZD broke below its previous 2026 low near 0.5625 during the local session and extended its decline towards 0.5600 overnight. The move broadly matched the fall in the AUD and reflected the softer risk tone. NZD/EUR firmed, while NZD/JPY fell towards 88.20, also a fresh 2026 low.

Offshore developments continued to drive NZ rates price action in yesterday’s local session. With few domestic catalysts, the swap curve shifted higher and steeper. The 2-year rate partially reversed the previous day’s rally, rising 3bp to 4.08%, while the 10-year rate increased 6bp to 4.08%, returning towards its recent peak. The government bond tender attracted solid demand, with NZ$2.1bn of bids across the two nominal lines. Both maturities recorded cover ratios of close to five and cleared through prevailing market levels.

September ANZ consumer confidence is released today. Euro area flash CPI is expected to rise to 3.7% y/y from 3.3%, consistent with the upside surprises in the national releases and maintaining pressure on the ECB. The key US risk event is the September payrolls report, with consensus looking for a 90k increase following August’s 162k gain. The unemployment rate is expected to remain at 4.1%, with wage growth steady.

Stuart Ritson is a senior Markets Strategist at BNZ Markets.