BCA Research analyst Felix Vezina-Pouliot said government bond yield volatility is likely to become a key driver of risk asset prices. Sovereign yields have risen to multi-year highs as elevated oil prices stoke inf concerns. "For equities, the absolute level of yields matters less than the speed of change; implied interest-rate volatility is a more useful gauge of equity risk," he said. Fed chair KEVIN WARSH signaled last week readiness to act to curb inf, which should help keep yield volatilit

Japan will auction 10-year government bonds on Tuesday, testing demand as markets price in potential BOJ rate hikes and yields approach the 3% milestone. On Monday the 10-year yield touched a 30-year high of 2.95%. The BOJ is due to announce policy on Sept. 18 and Deputy Governor Hino said a rate rise this month remains possible. A senior fixed-income strategist at a Paris-based asset manager, Kimura Ryutaro, said weak demand is likely if investors adopt a cautious wait-and-see stance before the Sept. meeting, but some buyers may be drawn to a 3% yield, which could cap gains above that level.

Fed governor Barr said the labor market is stable and the unemployment rate remains low.