AFS Markets Blog: Morning 01/09/2026

• Meanwhile in markets, US Treasury yields are up 2–3 bps this morning as punters increasingly believe that a September FOMC rate hike is on the table;

• Fed funds futures now price in 17bps of tightening for the upcoming FOMC meeting, up from 15.5 bps on Monday morning. The 2-year Treasury yield has hit 4.35 percent, its highest level since early 2025. Down the curve the 10-year yield has also reached its highest  level since January 2025. At the long end the 30-year yield remains 6bps below its August high – its highest level since 2006;

• If you’re looking for records being set on the bond market just look to Asia. Japanese Government Bond yields are up 5 bps this session, pushing the 10-year yield to 3.00 percent – its highest level since 1996. The 30-year JGB yield sits just a hair below its peak this millennium – set in May – while the 2-year yield reached 1.78 percent, its highest since 1995;

• The rise, especially at the short end, comes amid growing expectations of a Bank of Japan rate hike. BOJ-dated TONAR swaps now price in 23bps of hikes for the September 19 meeting. Year-end hike pricing is up 5bps over the past week and at 44bps sides with the BOJ hiking twice more in 2026;

• The developments will be music to the ears of the chief cheerleader for a BOJ hike – US Treasury Secretary Scott Bessent. Overnight at the G20 Bessent reportedly told Finance Minister Satsuki Katayama and BOJ Governor Kazuo Ueda that the BOJ should tighten policy. While Finance Minister Katayama later downplayed the interaction, Bessent has been vocal for a while that the BOJ should hike to support the weak yen. Following the joint US-Japanese FX intervention to prop up the yen in late July the currency has slowly weakened – with USDJPY trading just a hair below the 160 mark again;

• Turning to broader market commentary, Brent crude trades at $91.29 a barrel, fluctuating on mixed signals of war and peace coming from the Middle East. Overnight it was largely quiet beside Iranian claims of downing a US drone over the Gulf. President Trump is reportedly considering a limited strike to degrade Iranian military capabilities following recent attacks on US installations in Jordan, though publicly he vows to hit Iran hard. Iranian President Pezeshkian offered the opposite sentiment, reaching out with an olive branch to the US. He is quoted as saying that Tehran would immediately reciprocate if Washington returns to the Memorandum of Understanding ceasefire signed in June. While crude dipped on the initial headlines, it has since undone this move;

• Touching on equities, S&P 500 futures are flat this morning, with a mixed picture coming out of Asia. The Nikkei and Kospi are up marginally, while the Hang Seng has lost a percent today;

• Looking ahead, there are plenty of data releases on the calendar today. From the US we will get ISM Manufacturing PMI and job openings data. In our neck of the woods, we are going to be treated to Eurozone CPI readings alongside a couple of ECB-speakers.

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