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The markets have been digesting last night’s jump in US borrowing costs, at the auction of 30-year bonds.

Stephen Innes, global strategist at Quintex Intel, says investors are demanding “hazard pay” in return for lending to the US for three decades.

Innes explains:

That tells you the market is separating two trades that were previously being lumped together. Inflation pressure may be cooling, but fiscal pressure is not. Heavy Treasury issuance, persistent deficits, and a growing wave of corporate borrowing tied to the AI buildout mean the long end is carrying a different backpack than the front end.

There are worrying signs that demand for credit may be drying up in China.

China’s new yuan loans contracted by a record amount in July, new data shows, probably due to a combination of seasonal factors and weak demand from households.

New yuan loans were down by 340 billion yuan (£37bn) in July - the largest decline on record and the second contraction this year, after April - Reuters calculations based on People’s Bank of China data released on Friday showed.

The fall comes despite a drop in borrowing costs, as Capital Economic explain:

“This weakness in loan demand comes despite the fact that nominal bank lending rates have continued to edge down.

The recent uptick in inflation means that, in real terms, bank lending rates have fallen sharply this year.”

Aviva helping customers caught up in UK wildfires

Insurer Aviva said it is helping customers affected by the wildfires near Stourbridge in the West Midlands, but said the fires were “not material” for the company, my colleague Joanna Partridge reports.

Aviva’s chief executive, Amanda Blanc, told reporters the company had been in contact with its customers “to make sure they’re in alternative accommodation”, adding: “It must be absolutely horrendous for those customers that have had their homes destroyed by fire.”

However, despite the string of heatwaves and numerous wildfires that have impacted the UK this summer, the insurer has not seen high numbers of related claims and Blanc said they had not seen was “not a material event in the UK for Aviva”.

Blanc told reporters the insurer was looking at its reserves for subsidence and how to help customers to mitigate some weather events. She added:

“In the longer term, we’re always obviously looking at the pricing models around exposure management, about what more we could do, about how we can actually help customers to prevent some of these events. Are there things that you can build into properties that will actually mitigate some of these events, I’m thinking particularly of flooding. That is an area where we are working on resilience, so we can help our customers be better prepared for when these events happen.”

It came as Aviva reported a jump of operating profit of almost a quarter (24%) to in the first half of the year to £1.33bn as it heralded the “very good progress” it made integrated rival insurer Direct Line.

It is just over a year since Aviva completed its £3.7bn acquisition of Direct Line, in a deal that created one of the biggest car insurers in the country and Blanc said the company had already started to turn around performance at Direct Line.

Blanc refused to answer questions about her role as senior independent director at oil company BP, where she has been tasked with leading the search for a new chair, following the ousting of Albert Manifold.

Some BP shareholders have voiced concerns about Blanc running the search for a new chair for the second time, following Manifold’s short stint.

Some Aviva investors have also queried how much of Blanc’s time is spent dealing with developments at BP, rather than running the insurer.

Some European stock markets are becalmed today, as yesterday’s Wall Street rally fails to resonate on the other side of the Atlantic.

In London, the FTSE 100 is down 21 points, or -0.2%, at 10,750 points, on track for its fifth daily fall in a row.

France’s CAC index is flat, as is Spain’s IBEX, while Germany’s DAX is bucking the trend with a 0.5% rise.

“While European markets were in a holding pattern at the end of the week, their performance has generally been good so far this year, with investors having little reason to grumble,” says Dan Coatsworth, head of markets at AJ Bell, adding:

“The FTSE 100 pulled back slightly on Friday as weakness in miners, pharma, tobacco and banks acted as a headwind.

Oil prices are showing no sign of easing back after the recent Middle East conflict-driven spike, which gives investors reason to take stock of events and recalibrate portfolios based on their views of what could happen next.”

Eurozone grew 0.4% in Q2, but jobs growth was slower

Employment growth lagged behind economic expansion in the eurozone in the last quarter, new data shows.

Eurozone GDP expanded by 0.4% in April-June, a new ‘flash’ estimate from statistics body Eurostat shows, confirming the first estimate last month. That also matches growth in the UK and the US in Q2 2026.

But the number of employed people increased by just 0.1% in the euro area, suggesting growth is not feeding through to the jobs market, as companies struggle with inflationary pressure.

Looking back at the yen…Professor Costas Milas of the University of Liverpool Management School has calculated that Japan’s currency is undervalued by over 20%.

Given that, would a September interest rate rise (see earlier post) stabilise the yen, following the recent US-Japan intervention?

It all depends on economic fundamentals, Professor Milas explains:

The critical question to ask here is how weak the Japanese yen is. My own estimates (Chart below) suggest that the yen is currently around 21 per cent undervalued relative to its economic fundamentals (or equilibrium). What are the economic fundamentals?

1) The 10-year yield in Japan relative to the 10-year yield in the US.

2) Economic policy uncertainty in Japan relative to economic policy uncertainty in the US.

3) Trade policy uncertainty (as a proxy for tariffs).

To stabilise the yen, we should be looking for a big rise in the 10-year Japanese yield (part of it works through a hike in the Japanese policy interest rate), a drop in Japanese economic uncertainty and lower tariffs on Japanese exports to the US (which Trump is probably unwilling to implement).

Shares in software firms are rallying this morning, following a report that human-resources and financial management software company Workday could be taken over.

Sage Group (+4.5%), Experian (+4.4%) and Relx (+3.1%) are all among the top risers on the FTSE 100 share index this morning.

This comes after Reuters reported that private equity firm Silver Lake had been in talks with Workday over a potential takeover. That pushed Workday’s shares up by 18% yesterday.

Workday (like many software companies) had been under pressure in recent months on concerns that AI models might eat into its business.

As the UK’s summer of heatwaves continues, interest in air conditioning is rising almost as fast as the temperatures.

Rightmove reports this morning that searches for homes for sale in the UK with air conditioning have more than doubled this summer, as potential house buyers worry about keeping cool in the climate crisis.

More here:

The oil price is moving higher this morning, which will add to those inflation fears.

Brent crude has risen by almost 1% to $87.88 a barrel, having fallen yesterday for the first time in over a week.

Crude prices are rising after the Abu Dhabi National Oil Company reported that two of its vessels were attacked while transiting the Strait of Hormuz last night, and as the US threatened an indefinite naval blockade of Iran.

Reuters: BOJ eyeing September rate hike

Concern abour rising US borrowing costs was one reason Washington worked with Tokyo to prop up the Japanese yen earlier this month.

The US was concerned that Japan’s government might sell some of its holding of Treasury bonds in an attempt to stabilize its currency, so took part in a joint intervention to strenthen the yen instead.

That operation only had a temporary success (the yen recovered, but then began to weaken).

And now, The Bank of Japan is reportedly set to raise interest rates next month and could hike rates more aggressively afterwards, to provide support for the yen.

According to Reuters, three sources have said the BoJ is set to raise rates as soon as September, due to inflation worries and the weak yen.

Gennadiy Goldberg, head of US rates strategy at TD Securities, agrees that the rise in US borrowing costs is “problematic” for the Trump Treasury, adding (via the FT):

“They have to fund the government at more expensive levels.”

Introduction: US sells 30-year bonds at highest borrowing costs since 2001

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The fiscal pressures on the US government have risen after it paid the highest borrowing costs to sell long-term bonds in a quarter of a century.

An auction of 30-year US Treasury bonds last night showed that investors are demanding a heavy premium to take on long-duration US debt, amid concerns over the risk from inflation and the country’s rising national debt.

The sale of $25bn of 30-year bonds on Thursday incurred a yield, or interest rate, of 5.216%, the most since 2001.

Bond yields rise when prices fall, so last night’s auction suggests investors are worried that inflation will remain high for some time, prompting policymakers to keep interest rates high for some time.

That will concern the Treasury Department, as they need to fund a growing deficit due to Donald Trump’s spending plans and tax cuts (plus the refunds on the president’s tariffs).

Michal Stanczyk, portfolio manager for the global fixed income team at Allspring Global Investments, says (via Bloomberg):

“Investors are being asked to absorb a growing supply of government debt globally at a time when deficits remain large, inflation uncertainty persists.”

“If investors continue demanding greater compensation for inflation and fiscal risks, long-term yields could move higher and away from 5% even if Treasury auctions remain well covered.”

The agenda

  • 10am BST: Eurozone flash GDP report for Q2

  • 1.30pm BST: US retail sales for July

  • 3pm BST: University of Michigan’s US consumer confidence index