German 10 Year Yields Led a 34 Basis Point Rise as the BIS Names Hormuz the Quarter’s Disruption

By The Edge Research Team

10 year government bond yields rose 34 basis points in Germany, 31 in the United States, 27 in Japan and 24 in the United Kingdom across the Bank for International Settlements’ latest review period, which ran from 1 June to 3 September, and 30 year yields reached multi decade highs in many jurisdictions. The Bank published its September Quarterly Review on Monday. It names hostilities in the Strait of Hormuz as what tested the momentum the first half of the year had built, alongside what it calls lingering concerns about the sustainability of fiscal burdens. The Bank’s own summary of the quarter is that risk appetite ebbed and flowed but proved resilient on the whole: yields climbed, equity valuations in technology were cut hard, and investors stayed in the market anyway.

The long end did the work

The Bank puts the main locus of market action at the long end of the curve. 10 year yields resumed rising at the end of June as the likelihood of a tighter policy path increased, and 30 year yields extended their climb to multi decade highs across many jurisdictions. Term premium, the compensation investors require for holding longer dated bonds, is where the Bank locates a large part of the American move: following the flare up of the conflict with Iran at the end of June, term premia on US 10 year bonds rose by around 10 basis points on the different estimates the Bank cites, which it says accounts for about 40 percent of the overall increase in 10 year yields. Germany’s 34 basis point rise leads the United States by 3 basis points and the United Kingdom by 10, on our calculation from the Bank’s published changes.

As published by the Bank for International Settlements. Changes run from 1 June to 3 September 2026, the Bank’s review period.

One official operation is documented in detail. On 19 August the United States Treasury expanded its liquidity support buyback programme, doubling the maximum size of nominal long end operations from 2 billion dollars to at least 4 billion per operation, effective from 9 September through 4 November. The Bank calculates that this implies about 14 billion dollars of additional incremental purchases. On the announcement, 30 year and 20 year yields fell around 10 basis points and the 10 year fell nearly 6, and the Bank records that those declines soon retraced a sizeable part. Its own judgement is that the signalling value may matter more than the quantities, since some market participants read the move as possibly pointing to fewer long term bonds and a greater share of bills in future issuance. The next refunding announcement is scheduled for early November.

Europe, the Middle East and Africa was the grouping where spreads did not compress

Emerging market assets held up through the quarter, partly supported by capital inflows and by global investors reallocating to diversify risk. Their equity markets generally outperformed most advanced economies and corporate bond spreads narrowed further. China was the Asian exception, losing nearly 3 percent amid what the Bank calls signs of fading risk appetite, slowing domestic demand and ongoing weakness in the real estate market. The regional detail is where this matters for Gulf readers: corporate credit spreads compressed in Asia and in Latin America, and traded mostly sideways in the grouping the Bank reports as Europe, the Middle East and Africa. On currencies the split runs the other way: rising oil and metal prices improved the terms of trade for energy exporting economies, particularly in Latin America, and their currencies appreciated, while Asian emerging market currencies were broadly stable and those in the Europe, Middle East and Africa grouping faced what the Bank calls significant headwinds. When the ceasefire broke, the Bank records, energy exporters’ currencies posted larger gains. These are findings for the Bank’s combined emerging market groupings, not for the Gulf in isolation, but the grouping that contains the region closest to the disruption the Bank names in its opening paragraph is the one whose credit spreads did not tighten, even as the commodity its exporters sell was repricing in their favour.

The technology unwind exposed how concentrated the leverage had become

Unease about valuations and possible overinvestment in technology disrupted the equity momentum artificial intelligence had been driving. Price to earnings ratios across the broad information technology sector fell by between nearly 15 percent for hyperscalers and 40 percent for semiconductor manufacturers. What the Bank draws out is the machinery underneath. Much of the activity is hard to observe, it says, but one part has become highly visible.

As published by the Bank. The forced trading figure is the amount funds must trade to rebalance, and the Bank notes it goes in the same direction as the move itself.

2 stocks accounting for more than half the trading value of a national equity market, up from 12 percent through 2025, is the sort of concentration that shows up only when something moves.

Government bonds now trade cheap to swaps across 4 core markets

The Bank devotes a box to a structural change in the 4 core government bond markets it examines, the United States, the United Kingdom, the euro area and Japan. By 2025 government bond yields exceeded swap rates across the board: by around 50 basis points on average in the United States and the United Kingdom, and by about 20 basis points in Germany and Japan. A single factor explains 83 percent of the common monthly variation in this cheapness, and the Bank reports that all 4 sovereigns now trade at a discount to swaps with near identical loadings. The positioning built on it has shifted: cash futures basis trades in the US Treasury market are estimated to have reached 830 billion dollars by the third quarter of 2025 and their growth has since moderated, while interest rate swap trades are estimated to have risen from 100 billion dollars to 300 billion in the past year alone, a tripling in a year, on our calculation from the Bank’s estimates.

Averages as published. The Bank describes these as measures of bond cheapness relative to swaps.

Why it matters: the institution that serves the world’s central banks has put the Strait of Hormuz in its opening paragraph, and the market consequence it documents is a long end that rose across 4 major jurisdictions at once. For the Gulf the 2 regional findings pull in opposite directions and both are the Bank’s own: credit spreads in its Europe, Middle East and Africa grouping were the ones that did not compress, while energy exporters gained on terms of trade as prices rose. The leverage findings are a separate warning and they are not about this region at all, but they describe a market structure in which 2 stocks came to carry more than half of one country’s equity turnover.

Outlook: the buyback expansion the Bank documents runs through 4 November and the next United States refunding announcement is scheduled for early November, so the question of whether issuance shifts toward bills is answered then rather than now. The Bank publishes quarterly, and this edition covers a review period, 1 June to 3 September, that opened with optimism about a resolution of the conflict in Iran and saw the ceasefire break within it; the next edition covers what followed.

Sources: Bank for International Settlements.

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