Perhaps the biggest story in the markets over the past month has been the meteoric run-up in US Treasury yields, putting increasing pressure on the US economy. But the challenge is not just the US — the global bond complex is deep in a sell-off.
In France, where political leaders are staring down a burgeoning fiscal crisis, 10-year government OAT yields have risen by roughly 130 basis points since the start of the year, while the yield on Japanese 10-year bonds has jumped by around 100 basis points.
Yields on UK 10-year gilts and German 10-year bunds have risen around 80 bps and 60 bps, respectively, while those of 10-year Australian government bonds have climbed by roughly 50 bps.
The US 10-year Treasury, often cited as the most critical number in global finance for its widespread use as a benchmark, has climbed by more than 110 bps.
The pressures on the global sell-off are manifold and compounding.
The war in Iran has sent global energy prices soaring, putting pressure on inflation worldwide and shifting investor expectations for central bank rate-setting pathways higher for longer. At the same time, major world governments are facing ballooning national debt and growing deficits, forcing them to issue more debt just as investors are demanding higher yields to absorb it.
On a positive note, the global economy is also growing, as recent PMI readings throughout the developed world have shown “global growth momentum is both strong and broad-based,” per JPMorgan Chase. But a growing economy means investors expect a higher return on capital, and typically pushes central banks away from rate cuts.
Taken together, both the expected path of short-term rates and the term premium are moving higher, pushing long-term yields up across developed markets.