Global bond yields have reached fresh record highs, with the US 10-year Treasury yield touching a 14-month high of 4.799% on Monday. The rising yields are attributed to a combination of factors, including fewer rate cuts from the Federal Reserve and an increasing term premium associated with widening government budget deficits.
Market watchers say investors are now anticipating fewer rate cuts from the Fed than previously expected, and are demanding higher rates to compensate for the risk of owning bonds that mature well into the future. The US economy is strengthening faster than forecasted, which has reduced the Federal Reserve’s room to cut interest rates, leading to a sell-off in global bond markets.
The UK, Japan, and Asia-Pacific economies are also experiencing significant increases in their 10-year government bond yields. In contrast, China’s bond market has seen its yield plummet to record lows, prompting the country’s central bank to suspend government bond purchases.
The implications of higher yields on governments and corporations are clear: they are not good. Higher yields increase the amount of money needed to service debt, particularly for governments with persistent deficits. This can lead to a decrease in profitability for companies and even capital outflows from Asia.
As the market awaits the inauguration of US President Donald Trump next week, bond buyers are taking a “buyer strike,” awaiting more information on tariffs and immigration restrictions before making any major moves. If these policies are perceived as inflationary or negative for the budget deficit, the sell-off is likely to continue; however, if they are relatively modest, bonds could stabilize or even reverse.
Overall, the rising global bond yields are a clear warning sign of economic concerns, highlighting the need for governments and corporations to address their fiscal trajectories.
Source: https://www.cnbc.com/2025/01/14/a-global-bond-sell-off-is-deepening-as-hopes-for-multiple-fed-rate-cuts-fizzle.html