Yields Rise on Concerns Over Excessive Government Debt

Record £14B UK debt issuance fuels global bond sell-off. UST yields rose 7 bps at the long end of the curve this morning, largely driven by concerns about elevated global debt issuance. The UK is in the spotlight following today’s record £14B 10-year note auction, which pushed the 30-year Gilt yield to its highest level since 1998. This comes after the 30-year JGB traded at its highest yield (3.23%) since 1999 last week. However, UST price action reversed slightly in the afternoon, with weaker than expected ISM manufacturing data as the main driver. Yields traded within a tight 2 bp range throughout the afternoon, with the 2-year yield ending 2 bps higher at 3.64% and the 10-year yield 3 bps higher at 4.26%. Meanwhile, equities slid today on the same debt concerns, with the S&P 500 and NASDAQ closing 0.69% and 0.82% lower, respectively.

ISM manufacturing contracts as costs increase. August ISM manufacturing data (48.7) showed the manufacturing sector contracted for the sixth straight month, despite slight improvement from July’s levels (48.0). This shrinkage was driven by elevated import duties that caused a production pullback, reflected by ISM factory output (47.8), which contracted for the first time in three months. Susan Spence, chair of the ISM Manufacturing Business Survey Committee, said, “We continue to have weak demand overall, still due to tariff uncertainty.” Despite this, the data presents some signs of optimism with new orders (51.4) expanding for the first time this year and prices paid (63.7) declining to its lowest level since February.

Appeals court deems most of Trump’s tariffs illegal. A Federal Appeals court ruled Friday that President Trump exceeded his authority when he bypassed Congress and imposed sweeping tariffs on “Liberation Day” in April. The court’s decision impacts tariffs implemented under an act called IEEPA, which includes reciprocal tariffs (as high as 50%) imposed on countries the US runs a trade deficit with, as well as the 10% baseline duty set on most other nations. Tariffs that Trump imposed under different authority, such as those on steel and aluminum, are not affected by the ruling. Additionally, the Appellate Court did not immediately strike down the duties, giving the White House until October 14th to appeal to the Supreme Court, a process reportedly already underway. In the meantime, a potential implication of the appeals court’s decision is that the government could be forced to repay revenue collected by the import taxes.