The latest selloff has pushed yields higher in the US, UK, Germany and Japan, reflecting growing concerns about inflation, government borrowing and interest rates
Global bond prices plunged to multi-year lows yesterday, as mounting macroeconomic fears extended the selloff that has battered the US Treasury in recent weeks.
Investors are demanding higher returns to hold longer-term government bonds as confidence in fiscal sustainability erodes. Mounting concerns over unsustainable debt and inflation are fueling bets that central banks could have to raise interest rates further.
The latest selloff has pushed yields higher in the US, UK, Germany and Japan.
- The US 10-year Treasury yield rose to 4.78%, its highest level in nearly three years, while the 30-year yield reached 5.27%.
- In the UK, the 30-year bond yield climbed to 5.86%, its highest since 1998.
- Japan’s 10-year bond yield hit 2.99% yesterday for the first time since 1996, with investors weighing reports of a bigger budget alongside planned tax cuts.
- Australia’s 10-year yield also climbed to 5.198%, its highest in more than 15 years.
- France’s 10-year bond yield surged to levels last seen in 2008 last week, with investors increasingly worried about the government’s mounting debt burden.
Investors are becoming more confident that the Federal Reserve could raise interest rates this month. Markets now see nearly a 70% chance of a 0.25 percentage-point increase at the September 15-16 meeting.
Fed Governor Michael Barr said the central bank should raise rates if inflation does not move closer to its 2% target.
The Middle East conflict has pushed oil prices higher, strengthening fears that inflation could remain elevated. Brent crude rose 1% to $95.61 a barrel on Wednesday after jumping almost 6% a day earlier.
Higher bond yields are already affecting consumers. The average 30-year US mortgage rate climbed to 6.77% this week.
US stocks fell as investors reacted to the bond-market selloff. The S&P 500 dropped 0.71%, while the Nasdaq 100 fell 1.29%.
What it means: Higher yields raise borrowing costs for governments—and can make loans more expensive for businesses and consumers.