TS Pulse: Steeper, higher, longer

Rate decisions are out the way for major markets until August, but government yield curves are in full focus.

• Government bond yields are hitting decades-old highs: German 30-year yields climbed to levels last seen in 2011; French 30-year yields reached 4.86%, an 18-year high; the 30-year US Treasury topped 5.31% on Monday, its highest since 2007; UK 30-year gilts hit their highest since 1998; and Japanese 30-year yields broke above 4% for the first time in their 27-year history. Sticky inflation, high debt-to-GDP ratios, the inflated oil price, and struggling GDP growth stymying governments’ fiscal options, have markets worried central banks are behind the pace in hiking rates.  
• US inflation came in as expected at 3.4% headline and 2.5% core, both down 0.1% from June. It seems like the market had been worrying about a miss to the upside as the likelihood of hikes dropped despite both matching expectations. The likelihood of a September hike fell to 40%, October's to 64%, and for the first time since June's meeting, December no longer had a fully priced in hike. The PPI numbers then came in lower than expected. The headline number was expected to drop from 5.5% to 4.9%, but fell further to 4.7%, while the core measure met forecasts for it to fall to 4.2% from 4.7%.
• UK wage inflation is moving the right way for the Bank of England to remain patient for the next couple of rates meetings. Wage inflation, including bonuses, matched market expectations, dropping to 4.1% in July after three months at 4.4%. Private sector pay inflation followed this move, also easing from 4.1% to 3.7%, but public sector wage growth kept the headline figure high, as it accelerated from 5.5% to 6.2%. The unemployment rate remained unchanged at 4.9% for a third consecutive month.
• UK GDP growth for Q2 was slightly better than expected, but from a low base. The monthly growth for June was 0.3%, versus an expectation for flat growth, which meant the quarterly growth fell from 0.6% in Q1 to 0.4%, as expected, and the annual rate accelerated from two quarters of 0.9% to 1.2%, slightly ahead of forecasts. The growth was driven by a 1.5% annual increase in services output, while construction output dragged with a 2% fall. This does suggest the economy has been remarkably resilient so far this year, even if inflation and budget uncertainty do present some risk of the economy stalling in the second half of the year.
• US retail sales fell 0.6% month-on-month in July, sharply missing expectations for a 0.1% rise and reversing June’s 0.2% gain; the first decline since October last year and the biggest in 14 months. The subset of the sales basket that is used to calculate GDP was down 0.4%, the most since the start of 2025, so we may be starting to see a little of the heat coming out of the US economy, buying the Fed more time before it starts hiking.  

Source: Bloomberg; pricing as per 11 August 2026

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