Driving the sell-off: signs of steady progress towards an interim U.S.-China trade deal that averts further tariff hikes, and the receding threat of a hard Brexit. A slew of PMI readings across major economies later this week, and Friday’s U.S. jobs report, may determine how prolonged the slide is -- and affect bets on a Federal Reserve pause after the expected easing on Wednesday.

“Investors were panicking about the trade war, global growth and Brexit in the summer and now they realized the situations aren’t that bad,” said Ken Peng, a Hong Kong-based investment strategist at Citigroup Inc. “I’d recommend investors to focus more on equities and high-yielding bonds in the coming three to six months.”

And indeed, they have been. The S&P 500 Index hit a record high Monday. Credit markets have rallied, shrinking premiums on both high-yield and investment-grade debt in the U.S. and Europe in recent weeks. In sovereigns, the global stockpile of negative-yielding debt has dropped 25% since the August high, to $12.8 trillion, the smallest in three months.

President Donald Trump had kicked off the August bond rally -- which featured the best monthly return on Treasuries since 2008 -- with his latest tariff-escalation announcement. U.S. 10-year yields sank down below 1.5%.

Now they’re closer to 2%, adding some cushion to the premium over two-year rates. A brief inversion of the yield curve in August had added to recession fears, as such an event has preceded past U.S. downturns.

In Japan, 10-year yields have returned to the Bank of Japan’s loosely set tolerance zone of 20 basis points either side of zero. They were at -0.12% Wednesday morning in Tokyo. With Japan responsible for roughly two-fifths of negative-yielding debt globally, the rise in rates offers some relief to the nation’s beleaguered institutional investors.

Chinese Bonds

This sell-off is notable as well for a slide in Chinese government bonds, which often show little correlation with the U.S. and other markets. Ten-year yields there have hit 3.30%, the highest since May.

China’s central bank isn’t helping to soothe nerves -- it has skipped open-market operations so far this week, effectively draining 500 billion yuan ($71 billion) from the financial system. A wall of maturing local-government debt may soon add more strain to the sovereign bond market.

“It’s important to distinguish between investment horizons,” warned Sue Trinh, managing director for global macro strategy at Manulife Investment Management. “Short term, the rally in risk might have legs, but we see quite a few ominous signs on the horizon through 2020,” she said.

Manufacturing has already tipped into a downturn globally, while recent indications showed even the often-reliable American consumer is reining in appetite for spending. China’s economy is heading for sub-6% growth for the first time in decades.

And then there’s the support from central banks. The Fed is projected to cut interest rates Wednesday, and has started expanding its balance sheet again -- even if the focus is on short-dated securities. European policy makers may not expect more monetary easing in coming months even if they cut forecasts in December, but the European Central Bank is also boosting its bond stockpile.

“It’s a good opportunity to get back into the bond market if you haven’t had the chance to accumulate,” said Kelvin Tay, regional chief investment officer at UBS Wealth Management in Singapore. “On a structural basis, yields are likely to remain low because there’s hardly inflation anywhere, whether it is Japan, Europe or the U.S.”