The Global Bond Selloff Escalates

This is not what John Lennon had in mind when he hoped “the world will be as one.” Government debt was on sale in several countries yesterday, with bond prices hitting longtime lows for the same reasons that had traders dumping US Treasury bonds in recent weeks.

Investors around the world are demanding higher premiums for holding longer-term government bonds amid fears of unsustainable debt levels and persistent inflation that could prompt central banks to hike interest rates. The inflation concern deepened after the US and Iran began exchanging fire again over the weekend following a month-long pause, pushing oil prices up by almost 6% this week.

Global sale

Bloomberg calculates that the G7 developed economies saw their average government bond yields—which move in the opposite direction to bond prices—rise to the highest level since 2000:

• The yield on the 30-year UK government bond hit its highest point since 1998 yesterday.
• Japanese 10-year government bond yield broke 3% yesterday for the first time since 1996 amid reports that the government is due to expand its budget, while lowering taxes. Treasury Secretary Scott Bessent suggested he thinks the country’s central bank will raise interest rates to support the yen.
• France’s 10-year bond yield rose to near 2008 highs last week due in part to concerns about unsustainable levels of government borrowing.

Stateside…Treasury bond yields rose slightly. Last month, they hit the highest level since 2007, declining briefly after Bessent announced the expansion of a government bond buyback program, before rising again. Meanwhile, the trading odds that the Federal Reserve will raise interest rates at its next meeting nearly doubled to almost 70% since last week.

Why it matters: Aside from raising borrowing costs for governments, growing yields herald higher borrowing costs for consumers and businesses.

Meanwhile…G20 finance ministers are meeting in Asheville, NC this week, and how the Treasury intends to deal with the bond market is likely on the agenda.—SK

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