August was a rough month for financial markets: as Deutsche Bank's Henry Allen writes, just 12 of the 38 non-currency assets the German bank tracks were in positive territory over the month.
Several factors lie behind that, including the prospect of interest rates remaining higher for longer, and the 10yr US Treasury yield reached its highest level of this cycle so far amid the market's "shock" that there is a lot of Treasury issuance coming down the pipeline. Alongside that, there’s been a further softening in the economic data, particularly in Europe and China, which has led to growing concern about the near-term outlook. To be fair though, we did see a recovery over the last week of the month, meaning that August just managed to beat February's performance, when only 11 of the assets tracked were positive.
At the start of the month, the biggest story was the relentless bond selloff, which took yields up to their highest level in years. For instance, the 10yr Treasury yield hit an intraday peak of 4.36% on August 22, which we haven’t seen since 2007. Real yields have driven the move higher, and we even saw the 10yr real yield hit an intraday peak above 2% at one point. That’s increasingly filtering through to the real economy, with MBA data showing that the average 30yr fixed mortgage rate stands at 7.31%, which is the highest since 2000.
