Global bond markets experienced a renewed sell-off on Wednesday, pushing long-term borrowing costs in the United States and the United Kingdom to levels not seen in decades amid ongoing concerns about inflation, high public debt, and geopolitical uncertainties.
The yield on 30-year U.S. Treasury bonds rose by as much as 0.09 percentage points to 5.73%, marking its highest level since 2002, before retreating slightly to 5.69%. This increase adds to the financial pressure on households and businesses amid inflationary shocks linked to the conflict in Iran. European government bonds also came under pressure, with yields on French and Italian debt rising by more than 0.1 percentage points, continuing a pattern of volatility in these markets. Yields move inversely to bond prices, so the rise indicates falling bond prices.
Investors cited several factors behind the upward trend in yields, including sustained high oil prices, unresolved tensions related to the Iran conflict, and robust economic data from the U.S. France’s 10-year government borrowing costs increased to 4.87%, nearing highs last seen in the early 2000s, as concerns about the Eurozone’s debt dynamics persist. Akshay Singal, head of short-term interest rate trading at Citigroup, suggested that while France may currently be the focus of debt worries, other countries could face similar challenges.
The UK also saw sharp movements, with the 30-year gilt yield rising by as much as 0.13 percentage points to 6.04%, its highest in 28 years, before settling just below 6%. Singal emphasized that market participants are paying close attention to government budgetary policies, which he characterized as lacking credibility globally, driving the bond market’s instability.
The bond sell-off weighed on equity markets as well. The Stoxx Europe 600 index declined by 1%, while U.S. stocks also fell, with the S&P 500 down 0.3% and the Nasdaq 100 off 0.4% in early afternoon trading, following record highs reached the previous day.
Evelyne Gomez-Liechti, multi-asset strategist at Mizuho, attributed the selling pressure to a decline in risk appetite amid rising oil prices, which hovered around $100.80 per barrel for Brent crude. She noted that despite higher yields making long-term bonds potentially more attractive, investors such as pension funds remain cautious due to market volatility.
The rise in bond yields was reflected in borrowing costs for consumers, with the average rate on 30-year fixed-rate mortgages in the U.S. hitting 7.49%, approaching a three-year high, according to the U.S. Mortgage Bankers Association.
Some investors, however, see potential opportunity in the sell-off. John Stopford, head of multi-asset income at Ninety One, suggested that if yields continue to climb, long-term bonds could become “meaningfully cheap,” describing 30-year Treasuries nearing 6% yield as an attractive value. John Thornton of Keyridge Asset Management added that there may be no immediate ceiling on yields, with a significant shift in oil prices seen as the primary factor that could stabilize the situation in the near term.