Relentless Rise in Interest Rates Looms Over Another Volatile Week for Markets

Bond yields marched higher during another volatile week, upending global markets as investors navigated mixed earnings reports and signs that officials at the Federal Reserve could push interest rates up much more to subdue stubbornly high inflation.

Hopes that the Fed will ease its campaign of rate increases have been undercut by signs that high inflation remains persistent. The Fed and other central banks around the world have been raising borrowing costs for consumers and companies in order to slow their economies and temper the pace of rising prices.

The pressures that drive inflation have been prominent in recent corporate reports, with higher prices producing better-than-expected earnings, despite warnings from executives that customers are starting to show some signs of strain.

All the while, government bond yields continued to climb higher. The 10-year U.S. Treasury yield, which underpins everything from mortgage costs to credit card rates, rose for a 12th consecutive week, matching the longest streak of weekly increases since 1984.

The yield on 10-year notes, which moves inversely to its price, rose nearly 0.2 percentage points this week, to 4.22 percent, around its highest level since 2007. That’s a big jump for an asset that typically moves in smaller increments, affecting markets around the world, including other sovereign bonds and currencies.

The rapid move higher in interest rates and government bond yields has worried investors, who are fearful that it may be too much for the global financial system to withstand.

This week, Japan, where policymakers have bucked the trend by trying to keep interest rates and bond yields low, intervened in its bond market as yields rose. The yen continued its slide against the dollar, setting a 32-year low as officials threatened to intervene to stop the “undesirable” depreciation, in the words of the country’s finance minister.

And the turmoil continued in Britain, where government bond yields rose and the pound lost more of its value after Prime Minister Liz Truss announced her resignation on Thursday, plunging the nation into another phase of economic uncertainty as officials tried to plug a gap in public finances and wrestle with double-digit inflation.

Policymakers have signaled that rates need to continue rising to pull down inflation.

“We are going to keep raising rates for a while,” Patrick Harker, the president of the Federal Reserve Bank of Philadelphia, said this week, noting the Fed’s “frankly disappointing lack of progress on curtailing inflation.”

Whipsaw moves in stocks reflected investors’ concerns and confusion about the economic outlook. The S&P 500 closed out the week up 4.7 percent, it’s best weekly performance since the end of June, with gains at the beginning and end of the week overcoming losses in the middle. The index rose 2.4 percent on Friday.

In financial reports this week, the wrenching effects of inflation and rising economic uncertainty were common themes.

The consumer giants Nestlé and Procter & Gamble raised prices sharply last quarter, passing on some of the higher costs for raw materials, labor and transportation to consumers. They also recorded declines in the volumes of goods that they sold, with Mark Schneider, the chief executive of Nestlé, saying “challenging” conditions for consumers were “impacting their purchasing power.”

Adidas reported that falling demand left the German sportswear maker with a “significant inventory buildup,” while executives at the French company L’Oreal said consumers were trading down to cheaper makeup products. American Express reported record-setting revenue for the second quarter in a row, in part a function of cardholders paying higher prices, but added more money than expected to its provisions against credit losses, which spooked investors.

Tesla, which has raised prices in recent months, also disappointed investors when it reported selling fewer electric vehicles than it had made. Elon Musk, Tesla’s chief executive, later wrote on Twitter that a recession could run until early 2024.

Next week, investors will get a look at more corporate bellwethers’ books, with Apple, Amazon, McDonald’s and others set to report their latest earnings, shedding more light — or sowing more confusion — on the state of the economy.