Major North American stock indexes closed slightly lower on Tuesday as government bond yields continued to rise ahead of key U.S. inflation and labor market reports. Investors were also closely monitoring comments from Federal Reserve officials regarding future interest rate decisions.

Long-term U.S. Treasury yields advanced, with the 30-year bond reaching 5.6206%, its highest level since June 2002. The benchmark 10-year Treasury yield climbed to 5.293%, marking its highest point since June 2007. Canadian 10-year government bond yields also edged up modestly, approaching 4%.

Despite these developments, equities trimmed some losses as bond yields eased from session highs and shorter-duration yields declined. The retreat in oil prices, supported by signs of a recovery in Middle Eastern exports and remarks from Federal Reserve Bank of New York President John Williams, contributed to a lessening of market pressure. Williams said the Fed has room to assess incoming data before deciding on further rate hikes, leading to a drop in market expectations for a 25-basis-point hike at the central bank’s October meeting—from nearly 70% earlier in the day to about 51.5%, according to CME FedWatch.

Rising bond yields typically raise borrowing costs and can make bonds more attractive relative to stocks, potentially impacting corporate profits. Market participants now await crucial U.S. economic data this week, including Wednesday’s Personal Consumption Expenditures Price Index from the Commerce Department, which influences Fed policy projections. Labor market indicators will be released throughout the week, culminating in Friday’s government jobs report.

Recent data highlighted some cooling in the U.S. labor market. The Labor Department’s August Job Openings and Labor Turnover Survey indicated a decline of 256,000 in job openings to 7.079 million, falling short of economist estimates. Meanwhile, U.S. consumer confidence dropped to its lowest level in over 12 years, according to a Conference Board report, with households citing concerns over worsening business and labor conditions amid geopolitical tensions related to the Iran conflict and rising rates.

Federal Reserve officials remain divided on the path forward. While Williams urged patience on additional hikes, Federal Reserve Governor Michael Barr suggested further increases are likely necessary. Chicago Fed President Austan Goolsbee warned that tolerating inflation beyond the Fed’s target for an extended period is risky.

Canada’s stock market mirrored U.S. weakness, with the S&P/TSX Composite Index closing down 0.1% at 35,460.27, its lowest finish since late July. Canada’s gross domestic product was flat in July and showed a preliminary gain of 0.2% in August. The TSX energy sector declined 1.3%, influenced by a 3.5% drop in U.S. crude oil prices to $89.38 per barrel.

Globally, sovereign bond markets are under pressure given sustained inflation driven largely by elevated energy costs and strong economic growth fueled in part by the artificial intelligence sector. September saw notable increases in two-year government bond yields in the U.S. and major economies including France, Germany, Britain, and Australia. Yields in Japan remain near historic highs.

Analysts attribute the sustained yield rises to the recognition that inflationary pressures tied to the energy sector are unlikely to abate soon. This environment is prompting some investors to reconsider government bonds as attractive despite heightened volatility, while others remain cautious about longer-term debt amid concerns over elevated sovereign borrowing.

Looking ahead, markets face several potential catalysts, including upcoming U.S. jobs and inflation data releases, budget discussions in France, the United Kingdom’s first budget under Finance Minister John Healey, and increased bond issuance from large technology firms expanding AI investments.

European bond markets have experienced additional strain amid political uncertainties, particularly in France, where fiscal debates and the rising popularity of far-left presidential contender Jean-Luc Mélenchon have driven French 10-year bond yields sharply higher, widening their gap with German Bund yields to the widest since 2012.

In the United States, while the recent rate hike has strengthened the Fed’s stance against inflation, ongoing policy uncertainties remain a concern. The combination of Fed decisions and Treasury actions to manage borrowing costs has unsettled some market participants, underscoring the challenges ahead for navigating the complex economic landscape.