Stocks down and yields up on the eve of the Fed decision: French ten-year bond at 4.46%

This morning we wrote about the Federal Reserve’s monetary policy committee meeting, which will decide on Wednesday. What is new this afternoon is not the decision, which has not yet been made, but the way markets spent the day waiting: equities down across three continents and bond yields rising.

The tally of the session

The Seoul stock exchange closed with the Kospi down 3.26%, on a combination of geopolitical tensions and concerns over the technology sector. Nasdaq futures shed more than 1% and the Nikkei followed the same movement. In Europe the opening was expected to be lower: CAC 40 at −0.28%, Dax at −0.31%, Stoxx 600 at −0.22%, with only the London market indicated up 0.19%.

The most significant movement, however, is in debt. The yield on the French ten-year OAT rose to 4.46%: it is the highest level since the autumn of 2008. In the fixed-income market a rising yield means a falling price, and in this case the cost of borrowing for the French State returns to where it had not been in eighteen years.

Indicator	Value as of September 14
Kospi (Seoul), close	−3.26%
Nasdaq futures	over −1%
CAC 40 (opening expectation)	−0.28%
Stoxx 600 (opening expectation)	−0.22%
French 10-year OAT	4.46%
Brent	over 100 dollars, around 107.5

The Fed, updated

The picture we published at 6:30 has hardened. Markets assign an 86% probability to a 25-basis-point hike at Wednesday’s meeting; according to CME FedWatch data cited during the day, the estimate is 86.7%. It would be the first hike since mid-2023.

The macroeconomic reference underpinning this expectation is the U.S. consumer price report for August, which recorded a 0.4% increase month-on-month. Forecasts have been adjusted accordingly: Michael Feroli indicated two hikes by year-end, in September and in December. More blunt was the assessment of Bastien Drut:

“The fate of the September 16 FOMC appears sealed.” (transl. from French) — Bastien Drut

The sources reporting these two positions cite the names without indicating their role or affiliated institution: we are therefore unable to specify them.

Why the two things go together

The link between the equity session and the rate expectations runs through energy. Crude oil stayed above 100 dollars a barrel just days before the central bank meetings, after the closure of the Saudi east-west pipeline toward the Red Sea decided on Friday following drone attacks; on Monday Brent rose 2.51% to 107.27 dollars. An energy cost that remains high makes it harder for a central bank to argue that price pressure is easing, and makes the tightening that markets are already pricing in more likely. In turn, the prospect of higher rates weighs on technology stocks, which are the part of the market most sensitive to the cost of money, and Seoul’s decline is the day’s example of this.

What we don’t know

We don’t know how the European sessions closed: the available data refer to opening expectations, not the close. We don’t know what specific factors pushed the French yield to its 2008 level — the available sources cite the context of rates and energy, not a specific decision or announcement. And above all we don’t know what the Federal Reserve will decide: an implied probability of 86.7% is what the market is willing to pay for an outcome, not the outcome itself. The press conference is expected on Wednesday.