Global markets are off to a cautious start this week as investors closely monitor the possibility of Israel launching a ground invasion of Gaza and navigate a sharp sell-off in bonds.

Over the weekend, Israel's military continued its airstrikes on Gaza and clashed with Hezbollah on the Lebanon border. While world leaders expressed support for Israel's right to defend itself, they also emphasized the importance of adhering to international humanitarian law and protecting civilians.

Although some aid trucks managed to reach Gaza, oil prices remained under pressure. However, the bond market showed little reaction, with U.S. 10-year yields climbing to 4.967% after surging nearly 30 basis points last week.

Investors are demanding higher real yields and term premia, leading to speculation that the market is pricing in a new normal for interest rates that exceeds the Federal Reserve's target of 2.5%.

Concerns about U.S. borrowing also persist, as Washington reported a budget deficit of $1.695 trillion for fiscal 2023, a 23% increase from the previous year and surpassing pre-pandemic shortfalls.

In Japan, yields also rose following reports that the Bank of Japan is discussing potential adjustments to its yield curve control policy, which may be announced at its upcoming policy meeting on October 31.

The global increase in borrowing costs has led the market to discount the possibility of the Fed raising rates next week, with a nearly 70% chance that tightening measures are complete.

Similarly, markets do not anticipate a rate hike from the European Central Bank at its meeting this week and are even considering the possibility of rate cuts starting in April next year.

Rising bond yields are also putting pressure on equity valuations, and companies that fail to meet market earnings expectations this week may face challenges. Tech giants such as Microsoft, Alphabet, Amazon, and Meta are among those reporting earnings, along with Intel, IBM, General Motors, and General Electric, among others.

Investors will closely watch these earnings releases as they navigate the impact of rising yields and geopolitical tensions on global markets.