September got off to a rocky start as persistent concerns about rising global interest rates and recessions dogged the stock and bond markets on Thursday and drove the safe-haven US dollar to a 24-year high against the yen.
The downside has been fueled by the possibility that the European Central Bank will raise interest rates by 75 basis points next week after Wednesday's record inflation reading.
In the currency markets, the dollar rose 0.4% to a 24-year high of 139.5 yen as investors braced for higher rates in the US while anticipating that Japanese firm rates won't go anywhere soon The euro and sterling also fell as much 0.4% against the greenback. It left the euro just above parity at $1.0035, while the risk-sensitive Australian and New Zealand dollars hit their lowest levels since July.
Hawkish Fed expectations saw Treasury yields hit fresh highs. The yield on benchmark two-year notes jumped 6 bps to the highest since late 2007, at 3.51%, while the yield on 10-year bonds rose 6 bps to 3.20%.
Bets on a bumper ECB move next week were gaining traction too. Euro zone money markets were now pricing in a roughly 80% chance of a record 75 basis point hike up from 50% earlier in the week.
That sent benchmark German Bund yields to over 1.63%. Italy's 10-year bond yield jumped 8 basis points to its highest since mid-June at 3.978% , and the closely-watched gap between German and Italian bond yields expanded to its widest since late July.
