Why does the USD outlook depend on UST and Fed policy credibility?

Elite Academy Desk — here is a clear take on the latest market development for traders following the story.

Major bond markets faced renewed upward pressure on yields, particularly at very long (30-year) maturities, driven by resurgent fiscal, inflation and policy fears. While these risks appear more intense for UK bond yields, we expect US 30-year yields to remain within their 4.8-5.1% range in the absence of an inflation surprise. Gold’s recent break higher points to further gains ahead after what has been an extended period of consolidation. We would use any minor pullbacks to add to gold, which we continue to see as a solid core holding. Bond market volatility, pockets of exuberance, and reports of potential equity market cooling measures in China pose the risk of short-term equity market pullbacks. still, we expect any pullbacks to be relatively shallow and short-lived. US jobs and inflation data in the coming days remain key for the mid-September Fed decision. Is the rise in US and UK 30-year bond yields a worry? What is your view on Chinese markets today? US yield curve steepening magnitude has been sizeable over a short period; Gold expected to continue rising from here Yield curve (30yr-3m and 10yr-2yr) change; current vs. history* Strategy: Major bond markets faced renewed upward pressure on yields, particularly at very long (30-year) maturities, driven by resurgent fiscal, inflation and policy fears. While these risks appear more intense for UK bond yields, we see US 30-year yields remaining capped within their 4.8-5.1% range absent an inflation surprise. Pressure was also visible in Japanese long bond yields, which have also pushed to multi-year highs as the Bank of Japan (BOJ) inches towards policy normalisation. Meanwhile, gold’s breakout from consolidation points to further upside, and we see any pullbacks as opportunities to add to gold, which we continue to see as a solid core holding. Finally, bond market volatility, pockets of exuberance, and reports of potential equity market cooling measures in China pose the risk of short-term equity market pullbacks. still, we expect any pullbacks to be relatively shallow and short-lived. US jobs and inflation data in the coming days will be key. A return of bond market volatility at the long end: Global bond markets faced renewed upward pressure, with long-maturity (30-year) bond yields leading the sell-off. The move has been sharpest in the UK, where the 30-year yields hit post-1998 highs on mounting fiscal concerns and doubts over the government’s policy credibility. In the US, concerns over Fed independence have added to the narrative, though yields remain rangebound. Japan also emerged as a driver of global bond volatility. 30-year JGB yields climbed to their highest in over a decade, testing BOJ’s tolerance for higher yields as inflation expectations remain above target. US yields likely capped; UK and Japan face greater risks. Despite recent pressure, US 30-year bond yields have not sustainably breached above their 4.8%-5.1% range. We expect this cap to hold, absent an inflation shock, creating tactical opportunities to lock in yields on rebounds towards 5.0-5.1%. In contrast, upside risks appear greater in the UK given fiscal headwinds, and in Japan where policy normalisation remains in play. We continue to favour UK Gilts as an opportunistic idea, but via diversified exposure across maturities that avoids excessive concentration in very long maturities. Yield curve steepening has already been sizeable over a short period. The chart illustrates that recent yield curve steepening, measured by 10yr-2yr and 30yr-3m spreads, has approached or exceed average historical magnitudes during periods of curve steepening. Momentum may lead to more steepening in the short term, but the balance of evidence suggests notable upside from here is likely limited for now, outside of recessionary or inflation shock scenarios. Short maturity bond yields already price in about 4 rate cuts over the next year, while long maturity bond yields remain capped. Add to gold following its breakout. After a multi-month period of consolidation, gold prices rose sharply, breaking above their recent range high of about USD 3440/oz. While technicals argue it is now overbought, we expect gains to extend. As the chart illustrates, since 2022, similar consolidation-to-breakout patterns have delivered strong returns. We would add to gold on pullbacks. We continue to view gold as a solid core