US and Japanese ten-year government bond yields rose to 5.18% and about 3.08% this week as investors weighed further rate increases. Japan’s yield reached its highest level since 1996, changing the comparison between domestic bonds and currency-hedged foreign holdings for Japanese investors.

The US and China extended their trade truce to January 2027 and identified $30 billion of imports in each direction for proposed tariff relief, including Chinese consumer goods and US agricultural products. They also agreed to establish an AI dialogue. China’s industrial profit growth slowed for a fourth consecutive month, with gains concentrated in electronics.

Read more on the week’s key developments:

1. US and Japanese bond yields climb in global sell-off

The US Treasury’s indicative ten-year yield rose from 4.96% on 22 September to 5.18% on 24 September, before edging down to 5.17% on 25 September. Japan’s ten-year government bond yield reached about 3.08% on 24 September as its market reopened after holidays, a level last seen in 1996. Japan had crossed the 3% threshold earlier this month and rose further alongside US yields.

Stronger US activity and rising business costs reported in September’s PMI added to expectations of further Fed tightening, alongside weak demand at a five-year Treasury auction. The Fed had raised its target range by 25 basis points to 3.75%–4% on 16 September, its first increase since 2023. In Japan, higher domestic yields make foreign bonds less attractive to lenders after currency-hedging costs and reduce the value of existing yen-denominated holdings. The BoJ raised its rate to 1.25% on 18 September, and minutes released on 28 September show that policymakers had discussed faster tightening.

2. US–China tariff plan targets consumer goods and agriculture

The US and China identified about $30 billion of imports in each direction for proposed tariff relief. The lists cover Chinese toys, appliances and baby products entering the US, and US agricultural goods, medical devices and coal entering China. China’s commerce ministry says more than 90% of the listed products would be freed from the additional tariffs imposed by the two countries. The Trump–Xi meeting also extended the trade truce to 10 January 2027 and produced an agreement to establish an AI dialogue.

The two-month extension keeps the existing truce in place while the governments work on a broader settlement. The tariff plan is narrower: it selects goods the two sides regard as less sensitive, leaving disputes over advanced technology and critical minerals outside this arrangement. Agricultural products are a consequential choice because China had already committed to buying at least $17 billion of US agricultural goods annually through 2028, alongside separate soybean commitments. Lower tariffs could help those purchases, but both governments must complete legal procedures before the new rates apply.

3. China’s industrial profit growth slows for fourth consecutive month

China’s industrial profits rose 4.2% from a year earlier in August, the fourth consecutive month of slower growth and a sharp decline from April’s 24.7% increase. Profits grew 15.7% in January–August, compared with 17.6% through July, even as industrial revenue rose 6.6% over the eight months. Electronics manufacturers accounted for 62% of the increase in profits, according to the National Bureau of Statistics.

The gains remain concentrated in businesses serving demand for technology. Electronics profits more than doubled over the first eight months, while carmaking profits fell 16% and profits in non-metallic mineral products, which include construction materials, fell 46.7%. Industrial receivables rose 9% and finished-goods inventories 11%, both faster than revenue growth of 6.6%. For banks lending to carmakers and construction-materials producers, the pace at which borrowers collect payment and clear inventories may be more revealing than the rise in aggregate profits.

4. OECD projects resilient growth alongside persistent inflation

The OECD’s interim outlook on 23 September projected global growth of 2.9% in 2026 and 3.0% in 2027. It forecast G20 inflation of 4.1% this year and 3.6% next year, higher than previously expected because of energy prices. Its 2026 growth forecasts were 2.2% for the US, 1.0% for the euro area and 4.5% for China.

The OECD expects another Federal Reserve rate increase in the fourth quarter and further tightening in Japan, while projecting that rates in Indonesia and South Africa will decline as inflation moderates. That divergence follows an energy shock whose protection is thinning; global oil inventories were 507 million barrels lower in August than in February, according to the OECD. Its outlook therefore rests partly on energy prices easing next year, even as more than half of G20 countries currently have inflation above their central bank’s target.

5. September PMI surveys show US and eurozone activity strengthening

S&P Global’s flash composite purchasing managers’ index rose from 56.0 in August to 58.4 in September in the US and from 52.0 to 53.1 in the eurozone. Both readings indicated faster growth in business activity. The UK reading fell from 52.5 to 51.7, though it remained above the 50-point threshold associated with expansion. The US survey also reported a sharp rise in fuel and transport costs.

Initial US unemployment claims were 197,000 in the week ending 19 September. The four-week average fell to 202,250, from 204,000 a week earlier and 236,750 a year earlier, indicating that layoffs remain low. Yet the University of Michigan’s final consumer-sentiment index fell from 51.7 in August to 48.1 in September. Its expectations index dropped more sharply, from 51.5 to 46.3, while year-ahead inflation expectations rose from 4.0% to 4.6%. The contrast is between a labour market with few new benefit claims and households increasingly worried about future prices and finances, even as businesses report faster growth.

6. A7-linked payments reached bank accounts in Hong Kong, mainland China and the UAE

A Financial Times investigation traced more than $6.9 billion in payments linked to A7, a Russia-backed payments network, through global banks despite sanctions. From late 2024 to August 2025, customer accounts at Standard Chartered in Hong Kong received $1.1 billion from A7-linked entities, while $273 million was sent to DBS in Hong Kong. Seventeen entities with accounts at First Abu Dhabi Bank made more than $1.8 billion of outbound payments. The findings do not establish that any bank knowingly facilitated sanctions evasion.

Just over half the documented flows ended in Chinese bank accounts. A7 used front companies and forged invoices to obscure the parties and goods behind payments. The FT reported that Standard Chartered questioned transfers from a Kyrgyz bank in February 2025, held payments to several accounts and later closed the affected recipient accounts. DBS said it had no direct relationship with A7 and had acted on an identified account. First Abu Dhabi Bank said it had identified and closed the A7-linked accounts brought to its attention. The forged invoices made the underlying trade difficult to establish even when banks questioned transactions.

7. India’s banking liquidity surplus falls from record level

India’s banking-system liquidity surplus fell to about INR 4.44 trillion ($46.4 billion) on 22 September from a record INR 11.16 trillion ($116.5 billion) on 6 September, Reuters reported, citing bankers and liquidity data. Reserve Bank of India (RBI) bond sales, foreign-exchange operations and tax payments contributed to the decline. The RBI scheduled a further INR 250 billion ($2.6 billion) government bond-sale auction for 28 September, the final tranche of its announced programme.

The surplus remains substantial, but its decline leaves banks with less excess cash to place overnight. If it continues to narrow, overnight rates could move closer to the RBI’s policy rate, raising short-term funding costs even before the October policy decision. ANZ, Citi, HSBC and Deutsche Bank have forecast an October increase, though the RBI has not announced one. Overnight rates and the liquidity balance after the final bond sale will give a clearer indication of conditions facing banks before that decision.

8. UK borrowing exceeds forecast ahead of October budget

The UK borrowed GBP 18.3 billion ($24.4 billion) in August, GBP 3.5 billion ($4.7 billion) more than forecast, according to figures released by the Office for National Statistics on 22 September. Borrowing in the financial year to August reached GBP 77.3 billion ($103.2 billion), exceeding the official forecast by GBP 8.1 billion ($10.8 billion). It was nevertheless GBP 2.2 billion ($2.9 billion) lower than in the same period last year. Public sector net debt stood at 93.8% of GDP at the end of August.

The government enters its 28 October budget with borrowing running above forecast and gilt yields elevated. August’s borrowing overshoot does not imply an equivalent increase in immediate market funding. The central government’s net cash requirement was GBP 10.0 billion ($13.3 billion), GBP 2.0 billion ($2.7 billion) below forecast. The more consequential figure for gilt markets will be any revision to the Debt Management Office’s financing remit at the 28 October budget, particularly the total gilt sales planned for the financial year and their maturity mix.

9. South Africa raises rates as inflation outlook worsens

The South African Reserve Bank unanimously raised its policy rate by 25 basis points to 7.25%, effective 25 September. It lifted its near-term inflation forecasts, saying headline inflation was likely to exceed 5% later this year and early next year as fuel prices rose. The bank also lowered its 2026 growth forecast from 1.4% to 1.2%, following a 0.2% contraction in the second quarter.

The bank examined a scenario in which higher global interest rates weakened the rand and required another rate increase above its baseline path. At home, food inflation is at its lowest since 2010 and the rand has helped contain import prices, but services inflation remains elevated. Longer-run inflation expectations are around 4%, above the bank’s 3% target. Its baseline model points to broadly stable rates for the rest of this year, with cuts later as inflation subsides.

10. Bank Indonesia holds rates as rupiah weakens

Bank Indonesia held its policy rate at 5.75% after its 22–23 September meeting, leaving its deposit facility rate at 4.75% and lending facility rate at 6.50%. It was Governor Destry Damayanti’s first policy meeting since taking office on 2 September. Bank lending grew 13.65% year on year in August. Investment loans grew 25.11%, against 11.45% for working-capital loans and 5.07% for consumer loans. Bank Indonesia’s reference rate moved from IDR 17,745 per dollar on 18 September to IDR 17,917 on 25 September.

The central bank held after raising rates by 100 basis points in May and June. Lending growth nevertheless accelerated from 13.58% in July, while August inflation of 3.19% remained within its target range. As the rupiah came under renewed pressure, Bank Indonesia widened discounted swap and forward hedging, previously available for portfolio inflows, to cover banks’ foreign loans and foreign direct investment. It also set out plans to use spot and forward-market transactions to stabilise the currency.

What to watch

The US personal income and inflation release on 30 September, manufacturing ISM on 1 October and employment report on 2 October; the RBI’s October policy decision; the Federal Reserve’s 27–28 October meeting; the Bank of Japan’s 29–30 October meeting; and the UK budget on 28 October.