〔Overnight Brief〕ECB September Hike Fully Priced as German 10Y Hits 3.36% 15-Year High, Yet Core CPI Drops to 2.4% — Iran Rial Breaks 2M/USD, Bessent Floats Weekly Sanctions

0. Overnight Arc

The global bond selloff widened in the European session: the German 10-year hit 3.36% (15-year high), the 30-year touched 3.845% (highest since 2011), and the French 10-year reached 4.21% (highest since 2008) ^[1]. EM followed: 10-year yields rose in South Africa, Korea and Poland, and CDS on 30 sovereign issuers extended a four-day run — the longest since April ^[2][3]. The ECB's September 25bp move is fully priced ^[4][5], yet eurozone core inflation surprised lower to 2.4% even as headline hit 3.3% ^[4][5], splitting the path beyond September.

1. ECB: Hike Locked, Path Diverges

• **[NEW] Joachim Nagel (ECB Governing Council):** the August core-inflation slowdown is "good news" and services inflation also eased, with "no second-round effects" yet visible in core; the September 10 decision is "relatively predictable" and "fully consistent" with market expectations for a 25bp hike ^[4].
• **[ESCALATED] Gediminas Simkus (ECB Governing Council):** it is "obvious" that rates should rise in September ^[6].
• **[ONGOING] Background:** ECB Executive Board member Isabel Schnabel said last week borrowing costs need to rise further ^[5]; Austrian central bank Governor Martin Kocher said "upward inflation risks have recently risen again" and a fresh ECB forecast round could confirm the need for another hike ^[5].
• **[NEW] August eurozone CPI:** headline 3.3% y/y (highest since September 2023), in line with Bloomberg consensus; core surprised lower to 2.4% ^[4][5]. Italy's national reading rose to 3.2% from 2.9%; Spain's hit 4.5% ^[5]. The split locks September, opens the rest.

2. Yields and EM Contagion

• **[NEW] Bund 10Y 3.36% (15-year high), Bund 30Y 3.845% (since 2011), OAT 10Y 4.21% (since 2008), BTP 10Y 4.22% (since 2023)** ^[1].
• **[NEW] EM leg:** 10-year yields rose in South Africa, Korea and Poland; CDS for 30 sovereign issuers climbed a fourth straight day, the longest streak since April ^[2].
• **[NEW] WSJ frame:** the runup in interest rates "challenges government borrowing" and pressures home buyers, credit-card holders and governments ^[3].
• **[ONGOING] Currency read:** the Canadian dollar retreated as the US dollar benefited from Fed hike bets ^[7]. (US September 16 hike priced near 70% ^[2] — background only, not a section topic.)
• **Source quality:** the EM-yields and CDS-streak items are relayed through a single Chinese-language flash and are not corroborated by primary exchange or trade-association data in the packet ^[2]; the Eurozone yield prints are sourced to CCTV via 36kr and are consistent across the packet ^[1].

3. Iran: Rial at 2M, $2B Intervention Readied

• **[ESCALATED] Currency:** the rial broke the 2,000,000-per-USD level in August, a record low, with July inflation at 66% y/y ^[8].
• **[NEW] Abdolnaser Hemmati (Central Bank of Iran governor):** reserves are "sufficient" and the bank is prepared to inject up to $2B to stabilize FX ^[8][9]. Reuters reads the remarks as "partly aimed at reassuring the market" after President Masoud Pezeshkian and other officials flagged growing economic difficulties ^[8].
• **[ESCALATED] Scott Bessent (US Treasury Secretary):** countries doing business with Iran may face US sanctions; secondary sanctions could be "rolled out weekly" and will initially target banks ^[8].

4. Japan: Bessent-Ueda, 155-165 Yen Range

• **[ONGOING] Sidelines:** BOJ Governor Kazuo Ueda and Treasury Secretary Bessent likely met on the G20 finance ministers' sidelines Sunday ^[10]; a separate US Treasury readout for a Bessent-Ueda meeting exists ^[11].
• **[NEW] JPMorgan strategy:** USD/JPY likely to range 155-165 as long as the BOJ hikes roughly once a quarter and US policy doesn't shift materially; shorts remain large — international balance of payments data show ~¥40.7T of net yen buying since October 2025, but ~¥57.1T of net selling in off-balance sheet flows leaves a ~¥16.4T net short position ^[12]. Shorts sit at 60-80% of the summer-2024 peak; a full unwind could push USD/JPY toward 142-146 ^[12].
• **[ONGOING] Four catalysts** for a yen rally: Fed cut expectations, BOJ hike acceleration with Nikkei correction, a GPIF lift in yen assets, and expanded US dollar intervention ^[12].

5. Fiscal Periphery, Russia, Israel

• **[NEW] Italy:** August budget deficit hit €12.3B ^[13].
• **[NEW] Mexico:** President Claudia Sheinbaum said the government has cut spending by 200B pesos since 2024 ^[14].
• **[NEW] Senegal:** will seek "debt treatment" to improve public finances ^[15]; the IMF and Senegal reached a staff-level agreement on a $2.2B program ^[16].
• **[NEW] IMF outlook:** 2026 global growth expected to remain stable at around 3% ^[17].
• **[NEW] Russia:** 2026 oil production forecast cut to a 17-year low; 2026 and 2027 fuel export forecasts also lowered, reflecting Ukrainian drone strikes on refineries and domestic gasoline shortages ^[18].
• **[NEW] Israel:** Bank of Israel cut the benchmark rate 25bp to 3.25% from 3.50% ^[19].
• **[ONGOING] G20:** Bessent delivered three sets of remarks — a press conference, an Imbalances plenary, and a Financial Literacy and Fraud plenary ^[20][21][22] — saying G20 ministers recognize a shared interest in addressing "excessive and persistent imbalances" whether economies are surplus or deficit ^[23][24].
• **[NEW] Germany:** Economy Minister publicly resisting "secret tax hikes" per Bild ^[25] — single source.