James Brodie
Head of Learning & Development, Flux
Bond Yields Grind Higher, Weak Chinese Data, Japanese PPI
Bond yields surge, oil rises, China weakens and equities wobble as stagflation and financial stress fears build.
Bond yields continue to grind higher today with Japan and U.S. 30-years both up another 2bp today, after both rising 9bp on Friday.
This is driving the dollar higher with Brent up another $1.70 as well today. Finally, equities are reacting to events, U.S. equity futures down another 0.6% today after falling over 1.5% on Friday.
BofA's Hartnett: "bubbles always end with sharp jump in yields…JGBs +230bps in ’89, USTs +260bps in '99, China +150bps in '07"
Weak Chinese data below expectations. China’s house price index falls another 3.5% YoY, to a 20-year low losing over 25% of its value. Fixed asset investment falls -1.6% YoY (est +1.6%), Industrial production +4.1% YoY (est +5.9%), retail sales +0.2% (est +2.0%), unemployment rate falls to 5.2%.
The big rates move higher started in Japan, where the PPI rose 2.3% M/M versus estimates of 0.8%, and surged to 4.9% y/y versus estimates of 3%. The 30-year Japanese government bond yield has breached 4% for the first time since its debut in 1999. The 20-year JGB yield is up to its highest since 1996. And in the U.S. mortgage rates are 60bp higher since the start of the war. (Chart 1, Bond yields surging higher)
Kospi fell 6% on Friday after rallying 325% this year.
Indonesian rupiah falls to a new all-time low.
Margin debt continues to rise as retail pour into triple leverage ETF. Check out margin debt versus 2000 & 2008. (Chart 2, FINRA, FRED)
Rich equity valuations with Shiller P/E at 41.66 (Chart 3, @QTRResearch)
Gasoline continues to make new highs (Chart 4, European EBOB June 26)
4-Stage Economic Framework Update from the Middle East crisis
A price shock (energy/borrowing costs) has progressed into broader inflation, with the cycle now at Stages 1–2. Stage 3 is demand destruction, already hitting vulnerable African and Asian economies, while the US holds out for now. Stage 4 - financial instability - is the growing tail risk. The key complication is desynchronization: different economies are at different stages simultaneously.
UK Yield Surge - 5 Key Points
Since the start of the Middle East conflict, UK yields have risen nearly a full percentage point, and the concern is multifaceted:
- Magnitude - The move is large and fast
- High-beta amplification - UK has outpaced other advanced economies due to structural vulnerabilities and political noise
- Eroded buffers - Limited policy flexibility with few economic shock absorbers remaining
- Main Street impact - Higher yields feed directly into mortgages, corporate borrowing, and weaker growth - not just government debt costs
- Spillover risk - Fallout extends into financial, political, and social domains, not just economics
Bottom line: The UK is a canary in the coal mine - a high-beta economy with thin buffers showing early signs of Stage 3–4 stress while the broader global cycle remains dangerously desynchronized.
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