Sell-Off Pressure and Yield Surges in Global Bond Markets
The war in the Middle East driving up oil prices and inflation concerns have led to historic yield increases in bond markets across G7 and other major economies.
Influenced by the war in the Middle East, rising oil prices and concerns that inflation will persist have brought about severe selling pressure and historic yield increases in global bond markets.
Global Selling Pressure
Selling pressure in global bond markets has reached a scale that cannot be explained solely by a single country's monetary policy expectations. The war in the Middle East pushing oil prices above $100 has reinforced concerns that inflation could become persistent once again.
This picture has led to central banks postponing their interest rate cut plans on the one hand, and pricing in new rate hikes on the other, resulting in simultaneously rising yields across global bond markets.
Historic Rates in G7 Countries
The average of G7 10-year bond yields rose to 4.285 percent, marking the highest level since 2008. Movements in US, European, and Japanese bonds clearly demonstrated the global nature of the sell-off wave.
Multi-Year Peak in the US Bond Market
The yield on the benchmark US 10-year Treasury note climbed up to 5.04 percent, hitting its highest level since July 2007. The yield on the 30-year bond also exceeded 5.40 percent.
As Brent crude surged up to $109, it reinforced investor expectations that the US Federal Reserve might raise interest rates, while high budget deficits further increased the pressure on long-term bonds.
Energy Shock in European Markets
In Europe, the energy shock created selling pressure spreading across the entire yield curve of the bond market. At its meeting on September 10, the European Central Bank raised its three key policy rates by 25 basis points each.
In the ECB's new projections, the 2026 inflation expectation was raised to 3 percent, while the 2027 expectation was announced as 2.5 percent, causing bond yields to surge sharply.
Germany, France, and UK Borrowing Costs
Germany's 10-year bond yield hit 3.57 percent, its highest level since 2009. In France, the 10-year bond yield reached 4.55 percent, and the 30-year yield reached 5.18 percent.
A similar picture was seen in the UK market, where the 10-year bond yield climbed to 5.43 percent and the 30-year yield rose up to 5.95 percent.
Thirty-Year Peak in Japan
Forming the third leg of the global bond sell-off, Japan's 10-year government bond yield rose to 3.04 percent, hitting a peak of nearly 30 years.
While the Bank of Japan is expected to raise its policy rate by 25 basis points to 1.25 percent at its meeting, markets have focused on Governor Kazuo Ueda's messages regarding subsequent steps.