A sell-off in global government bonds has pushed yields back to their highest level since 2008
30-year U.S. Treasury bonds are experiencing their worst period since 2006
Global bond yields have returned to their highest level in nearly two decades / Photo: Mehaniq / Shutterstock.com
Global bond yields have returned to their highest level in nearly two decades, according to Bloomberg. The renewed rise in oil prices due to the protracted conflict between the U.S. and Iran has heightened concerns about inflationary pressures — against this backdrop, a “hawkish” speech by the new Fed Chair, Kevin Warsh, prompted investors to sharply raise their expectations for a rate hike in September.
Details
The yield on 10-year Japanese government bonds reached 3% on Tuesday, September 1, for the first time since 1996. Demand for Australian bonds also fell. This followed a sell-off in U.S. Treasury bonds, which pushed the yield on 10-year notes to its highest level since January of last year.
The yield on the Bloomberg index, which tracks global government bonds, rose Monday for the fourth consecutive session to 3.72%—its highest level since mid-2008.
Long-term U.S. debt is under particular pressure: the yield on 30-year U.S. Treasury bonds has not remained this high for such a long period since 2006, Bloomberg notes. Since the beginning of January, it has exceeded 5% for 55 consecutive days, and in mid-August it reached 5.34%, its highest level since 2007. On Tuesday, September 1, the yield on 30-year Treasuries stood at nearly 5.28%. Yields have nearly returned to the levels seen before Treasury Secretary Scott Bessent attempted to calm the markets by deciding to double the volume of Treasury bond buybacks.
Bloomberg warns that the Treasury Department’s attempts to keep yields in check are being offset by an expected wave of $215 billion in corporate bond offerings in September amid the AI boom. The sharp rise in yields in the bond market also threatens to reduce the appeal of stocks, putting the global rally at risk — the MSCI All Country World Index, which serves as a barometer of the overall securities market, has already fallen 1% from its August high, the agency reports.
What to Expect Next
Bloomberg explains that the main trigger for the latest wave of selling was a more hawkish-than-expected statement by Fed Chair Kevin Warsh. Following that, markets priced in about a 70% probability of a rate hike at the upcoming meeting on September 15–16. Analysts at Barclays now expect two rounds of Fed rate hikes: one in September and another in December; Société Générale has also revised its forecast to anticipate a rate hike.
The large U.S. budget deficit, a new wave of corporate bond offerings, and a potentially pivotal regulatory meeting are expected to keep investors wary of U.S. government debt in the coming weeks, according to Bloomberg. The situation is further exacerbated by seasonal factors: historically, September and October are the worst months for the global bond index, during which it loses an average of more than 1%.
What Analysts Are Saying
— “In the short term, the backdrop is extremely unfavorable: persistent inflation is coupled with large budget deficits in the U.S., Japan, the U.K., and France,” explains Mark Cranfield, a strategist at Bloomberg Intelligence.
— “Markets are pricing in a higher trajectory for short-term interest rates, not only in the U.S. but around the world. Investors are beginning to reassess their views on what the neutral interest rate should be, and these estimates are gradually rising,” notes Idanna Appio, portfolio manager and senior analyst at First Eagle Investments.
— Yields on long-term bonds are expected to remain high until U.S. authorities decide to reform social programs to reduce the budget deficit, according to John Briggs, head of U.S. interest rate strategy at Natixis North America. He described the Treasury’s bond buybacks as a drop in the bucket.
— Priya Misra, a portfolio manager at JPMorgan Asset Management, agrees that the buyback could support demand for long-term securities, but its effect “may prove insignificant amid a flood of new issuances related to the construction of AI infrastructure”. “We may already be approaching the peak of long-term bond yields, but uncertainty remains due to a multitude of conflicting factors,” she said.
— “The bond market isn’t crashing, but it’s sending a clear signal: more persistent inflation means that interest rates will, at the very least, remain high for longer,” — predicts Prashat Nyunaha, a strategist at TD Securities in the Asia-Pacific region.
This article was AI-translated and verified by a human editor
