European Central Bank policymaker Olli Rehn said the ECB may still raise interest rates in June to maintain credibility following an energy-driven inflation shock linked to the Iran war, though there are few signs that elevated inflation is becoming entrenched. Rehn said wage growth remains moderate and longer-term inflation expectations are still anchored, even as policymakers prepare for the possibility of a prolonged disruption to energy supplies.

US Treasury yields declined as investors grew optimistic about a potential US-Iran deal that could ease global energy prices and inflation. US President Donald Trump said the US is in the "final stages" of negotiations with Iran. The 10-year Treasury yield dropped 10 basis points to 4.57%, and the 30-year yield fell to 5.11%.

South Korea plans to decrease debt issuance in June to support the bond market, which has seen government bonds fall by 6.9% this year amid a semiconductor boom. The South Korean Finance Ministry says it will also take steps to attract foreign inflows and promote reshoring investment.

High-yield debt is outperforming other fixed-income assets this year, with credit spreads at near two-decade lows. Bloomberg indexes show speculative-grade debt has outperformed investment-grade bonds by 1.6 percentage points this year, and Bloomberg data shows US high-yield market fundraising has surged 40% from a year ago. However, investors are concerned this could lead to complacency, especially as risks such as rising interest rates and potential stagflation loom.

China's yuan has strengthened to its highest level against the US dollar since February 2023 after the People's Bank of China set the daily fixing rate at 6.8349 per dollar, reflecting growing confidence in the currency. The move comes as major global banks adopt more bullish forecasts on the yuan following recent market volatility and continued appreciation in offshore trading.

US Federal Reserve officials could look to raise interest rates if inflation remains elevated, according to the minutes of a recent meeting of the US Federal Open Market Committee. A majority noted that "some policy firming would likely become appropriate if inflation were to continue to run persistently above 2%," according to the minutes.

The European Commission has begun a comprehensive review of the Markets in Crypto-Assets regulation with a focus on stablecoins, particularly multi-issuance global stablecoins. The review addresses concerns about the potential draining of local reserves during crises and considers legislative developments in the US and UK. Public and technical consultations are open until Aug. 30.

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