US stocks closed lower across the board on Monday, while Treasury yields climbed as the bond market rout deepened. The Dow Jones Industrial Average fell 0.7%, the Nasdaq slipped 0.12%, and the S&P 500 dropped 0.33%. Mega-cap tech shares were mostly in the red, with Amazon down 2.5%, Alphabet losing over 2%, Microsoft shedding more than 1%, and Meta declining nearly 1%. Apple fell 0.89%, while Tesla surged more than 5% and Nvidia gained over 1%.

The benchmark 10-year Treasury yield rose above 4.76% at one point on Monday, August 31, hitting its highest level since January 2025. The 5-year yield also climbed to its strongest point since early 2025, while the 30-year yield added roughly 5 basis points to hover near 5.26%.

Market observers believe this Treasury selloff is not purely driven by geopolitical factors. At Friday's Jackson Hole symposium, Federal Reserve Chair Warsh delivered a distinctly hawkish message, underscoring that price stability remains the Fed's core mandate. That triggered a sharp upward repricing of September rate-hike expectations. By Monday, federal funds futures were pricing in roughly a 64% probability of a September hike, well above the approximate 35% level seen before Warsh's remarks.

Treasury Secretary Scott Bessent said on Monday that US bond yields have been "basically flat" since President Trump took office last year. "If there were truly a problem in the Treasury market, investors would be dumping Treasuries and buying other countries' bonds instead. But in reality, the Treasury market has been the best-performing one," he commented.

Meanwhile, President Trump, speaking in the Oval Office while announcing a deal aimed at lowering prescription drug prices, claimed the US economy could grow at a rate of 14%, 15%, 16%, or even 20%. He stressed that even such explosive growth should not prompt the Fed to raise interest rates. "Growth success does not cause inflation," Trump told reporters at the event. The remarks come as he continues to pressure the Fed to cut borrowing costs, even as central bank officials grapple with inflation still running above their 2% target.

On the geopolitical front, Trump threatened to strike Iran "very hard." According to reports, Trump said the US will respond to Iran's attack on a US base in Jordan with retaliatory action. "We will hit them very hard," he said.

In a separate statement on August 31, Iran's Armed Forces General Staff declared that while respecting the sovereignty of neighboring countries, Tehran will not tolerate any act of aggression and will respond with even greater force. The statement noted that although several countries in the region have formally announced they will not allow aggressive US forces to use their territory to attack Iran, American troops have still used such territory to strike Iranian military facilities. It emphasized that US forces have no choice but to withdraw from the region, and that those facilitating American aggression against Iran should understand that all branches of Iran's armed forces will stand united to crush and strike any source of aggression.

While global investors remain fixated on the Federal Reserve's next move, a broader "rate-hike storm" is brewing across the world. Data from 32 swap markets monitored by Bloomberg shows that roughly two-thirds of markets have already priced in rate increases. Traders broadly expect borrowing costs in Japan, Canada, the UK, and the eurozone to rise faster than in the US over the next year.

Some central banks have already started acting. On August 27, the Bank of Korea raised its benchmark rate by 25 basis points to 3.0%, the highest level since February 2025. On the same day, the Philippine central bank lifted its overnight reverse repurchase rate by 25 basis points to 5.00%, with the benchmark lending rate moving to 5.50%. It marked the third consecutive rate hike for the Philippines since April, aimed at containing inflationary pressures.

Market analysts attribute the synchronized global tightening to three converging forces: stubborn inflation, expansionary government fiscal policies, and the AI investment boom. With expectations for further monetary tightening mounting across multiple economies, the threat to broad asset classes is becoming systemic, with an impact that may even surpass the uncertainty surrounding Fed policy. This shift signals a departure from the "Fed-centric" interest rate cycle that has characterized global markets in recent years.

Li Mingyu, director of macro-financial research at Xinhui Futures, noted that as the global liquidity easing cycle draws to a close, tighter financing conditions will weigh on aggregate demand. Equity and commodity markets will face valuation constraints, while emerging markets face heightened risks from capital flow volatility.

Adding to investor distress, bonds—traditionally viewed as the "shock absorber" in portfolio allocation, hedging risk when equity rallies stall or trade frictions hit the economy—are losing that protective function. If central banks outside the Fed are forced into aggressive rate hikes, bonds may not only fail to diversify risk but could actually become a drag on portfolio performance.

Recent data underscores the pressure: the 30-year US Treasury yield remains elevated as a key global pricing benchmark; the UK 30-year yield briefly approached 5.86%, near levels not seen since 1998; Japan's new 10-year JGB yield touched 2.950%, the highest since October 1996; and Germany's 10-year Bund yield rose to around 3.26%, breaking through multi-year highs.

This globally synchronized tightening is forcing professional institutions to rethink their asset allocation strategies. Kenneth Goh, wealth management director at UOB Kay Hian, pointed out that bond allocations in portfolios are now far lower than a decade ago. When major global markets tighten in unison, bonds' traditional risk-hedging properties begin to fail. He cautioned investors: "Many people still habitually assume bonds can 'backstop' a portfolio, but under the new macro logic, that old playbook no longer works."

Looking ahead to the Fed's policy meeting scheduled for mid-month, Li Mingyu believes the September rate decision remains uncertain. "The September FOMC meeting will serve as a key test of whether Fed Chair Warsh's words and actions align. If the Fed delivers a hike in September, it could mark a window for short-term tightening risks to clear. If the Fed chooses to 'stay on hold,' it would repeat the pattern of June-to-July where rate expectations flip-flopped—causing greater damage to the Fed's credibility, pushing up term premiums at the long end, and triggering negative pricing for Treasuries and the dollar," he explained. Regardless of the outcome, major asset classes will remain tightly anchored to US inflation and employment data, with market volatility staying elevated.