Bonds post worst month in years; stocks decline for September and oil gains

By Caroline Valetkevitch and Danilo Masoni

NEW YORK/MILAN, Sept 30 (Reuters) - Global bonds closed out their worst month in years on Wednesday, with the benchmark 10-year US Treasury yield rising on the day and posting its biggest monthly increase since 2022, while the S&P 500 registered a decline for September and European shares suffered their first monthly fall in six.

For the quarter, 10-year US yields were showing their biggest rise since 2009, while France's 10-year bond yield had its biggest jump in nearly four decades. France's 10-year yield had its biggest monthly rise in almost four years. 

Bond yields have surged this month as prices tumbled, with soaring energy costs fueling inflation fears and the AI boom boosting economic growth, leaving investors to position for a period where interest rates stay higher for longer. Higher rates are seen as a negative for stocks because they increase borrowing costs for businesses and consumers.

Among the latest data on inflation was a report Wednesday that showed US inflation increased less than expected in August and price pressures were more moderate in the prior month than previously reported.

Stocks rose and two-year US bond yields initially fell on the news as expectations that the Federal Reserve will hike interest rates next month decreased. Separately, the final reading of second-quarter GDP data was revised higher to a 2.2% annualized rate, thanks to solid consumer spending and investments helping to fuel the buildout of AI infrastructure.

"The market was able to breathe a collective sigh of relief today," said Adam Sarhan, chief executive of 50 Park Investments in New York. "It takes pressure off the Fed to raise rates."

The Fed increased interest rates this month for the first time since 2023 in an effort to combat inflation. The market was last pricing in a roughly 63% chance that the Fed will keep rates steady next month compared with a 55% chance before the US inflation release, according to the latest data from LSEG.

Elsewhere, inflation rose sharply in five German states in September, while France's harmonised inflation rate was 3.4%, up from 2.6% in August, and Italy's jumped to 4.1% from August's 3.2%.

The spread between French and German 10-year borrowing costs was last at its highest since 2012.

On the last trading day of the month, 10-year US yields were up 53 basis points for their biggest monthly climb since September 2022. Yields on 30-year bonds have risen about 39 basis points this month for their largest increase since December 2024.

Sovereign yields are an anchor for global markets, a reference price for investing in riskier assets.

Stocks were mostly lower on the day. The Dow Jones Industrial Average fell 443.87 points, or 0.86%, to 50,906.05, the S&P 500 fell 19.30 points, or 0.25%, to 7,651.54 and the Nasdaq Composite rose 63.52 points, or 0.24%, to 26,861.06. 

While down on the month, the S&P 500 notched its second straight quarterly gain.

MSCI's gauge of stocks across the globe fell 1.86 points, or 0.16%, to 1,134.00. The index was down more than 1% for the month.

The pan-European STOXX 600 index fell 0.5% on the day.  It is down 2.5% for the month and 1% for the third quarter.

OIL GAINS FOR DAY, MONTH

Oil prices rose by about $1 a barrel on the day and registered steep monthly gains, on stalled US-Iran peace talks and tightening US fuel markets.

The Brent November futures contract, which expires on Wednesday, settled up 91 cents, or 0.9%, at $103.50 a barrel. The more active December contract was up $1.87, or 1.9%, at $98.03. US West Texas Intermediate crude settled at $90.42, up $1.04, or 1.2%.

Brent recorded a monthly gain of around 14%, its biggest since July, while WTI increased by about 5% on the month.

The US dollar was last flat against major currencies on the day following the US inflation data. But the greenback, which has been strengthening along with rising US Treasury yields and expectations of more Fed rate hikes, gained for the month against some major currencies. 

The euro had a monthly loss against the dollar after two consecutive months of gains.

Spot gold fell 0.64% to $4,154.17 an ounce and was down for the month.

(Reporting by Caroline Valetkevitch in New York and Danilo Masoni in Milan; additional reporting by Rae Wee and Rocky Swift; Editing by Thomas Derpinghaus, Christian Schmollinger, Chizu Nomiyama, David Gaffen and Sanjeev Miglani)