Investors Brace for a "Hawkish Cut" Out of the Fed as Global Bond Yields Hit a 16-Year High

From stretched valuations to rising yields, the signals across markets point to a fragile late-cycle backdrop

Key Takeaways

• Global Yields Climb as Easing Bets Recede: Global bond yields have just tested their highest level in sixteen years (and the world yield curve is at its steepest shape in nearly a decade), as expectations of an end to easing cycles in many countries intensify. Markets have swung this past week from ECB policy easing in 2026 to modest tightening; the odds of an RBA hike have moved up to over 30% as early as February.

• Leading Indicators at Recession-Style Lows: The LEI fell by -0.3% MoM in September after a like-sized decline in August — it has been flat or down in each of the past ten months and is now down to an eleven-year low. It would have been down by -0.4% if not for the contribution from the stock market. The YoY trend has been ensconced in negative territory each and every month since July 2022 (-3.3% presently), and that duration has never occurred outside of an outright recession.

• Consumer Sentiment Signals Deep Gloom: The macro bulls are waxing on about the mild improvement in the University of Michigan consumer sentiment index, despite the fact that it still rang in at the seventh-lowest level on record in this 70-year-old survey. It does say something about the state of consumer psychology — it is now so damaged that the sentiment gauge is lower than it was at the onset of all past recessions as they headed into their first month, and is -36% below the average.