The big three (September 2025)

1. Long-dated yields on the rise 

In 2025, long-term bond yields have risen sharply across developed markets including the US, UK, EU, and Japan. The 30-year gilt yield recently reached a peak of 5.7% - a 27-year high. Whilst inflation has eased from post-pandemic peaks, investors are increasingly demanding higher compensation for holding long-dated debt due to concerns over persistent fiscal deficits, elevated government issuance, and reduced central bank support due to quantitative tightening policies. Traditional buyers of duration, such as pension funds and insurers, have stepped back, while idiosyncratic factors such as Japan’s unwinding of the yen carry trade have tightened conditions further.

In contrast, short-term yields have remained more anchored. Central banks, having shifted from aggressive tightening to cautious rate-cutting cycles, are keeping policy rates stable or lower at the short end. This leaves short-dated debt largely priced around monetary policy expectations, whereas the long end reflects structural risks around debt sustainability, future inflation, and reduced demand.

Source: Trading Economics

2. US labour market falters

Recent US data shows a noticeably weaker than expected labour market. In August, the US added just 22,000 jobs, well below forecasts, with the unemployment rate rising to 4.3%. On top of this, revised data showed that in June 2025, the US lost 13,000 jobs – the first negative reading in over four years.

This weaker backdrop has materially shifted expectations for Federal Reserve policy. Softer job gains and a more fragile labour market have tilted expectations toward earlier and more decisive rate cuts. Fed officials had already been balancing disinflation progress with the risk of overtightening, and the recent jobs weakness strengthens the case for easing. Markets are almost certain of a rate cut in September’s meeting and have priced in a 65% chance of three rate cuts before year-end.

Source: Reuters, FactSet

3. France’s government collapses (again) 

France has been thrown into its second government collapse in less than a year after Prime Minister François Bayrou was ousted in a crushing parliamentary confidence vote. Bayrou’s downfall stemmed from his controversial plan to rein in France’s ballooning deficit, with debt now exceeding 114% of GDP, by cutting €44 billion in spending. Measures such as abolishing public holidays and trimming welfare sparked fierce opposition across the political spectrum, uniting left and right against him.

In response, President Emmanuel Macron has turned to 39-year-old Sébastien Lecornu, the former Defence Minister and a loyal ally, to take the premiership. Lecornu inherits an exceptionally fractured landscape: a hung parliament, fierce street protests, and widespread public distrust. Beyond stabilising Macron’s weakened centrist coalition, he must urgently present a credible 2026 budget to Brussels and the financial markets, while navigating pressure from far-right and far-left blocs that have grown increasingly influential.

Source: Reuters