Global Bond selloff sends yields to the highest level since 2008

The move started after Federal Reserve Chairman Kevin Warsh doubled down on his vow to finally tame inflation, and was extended this week as energy prices rose on renewed conflicts in the Middle East

Global bond yields climbed back to the highest level in almost two decades as rising oil prices fueled inflation concerns and investors ramped up expectations for interest-rate hikes.  

The move started on Friday after Federal Reserve Chairman Kevin Warsh doubled down on his vow to finally tame inflation, and was extended this week as energy prices rose on renewed conflicts in the Middle East.

 The rate on 10-year Japanese government notes touched 3% for the first time since 1996, UK 30-year yields reached the highest since 1998 and the 10-year Treasury rate hit levels last seen January last year. The yield on a Bloomberg gauge of global sovereign bonds advanced for a fourth straight session on Monday, rising to 3.72%, the highest since mid-2008. 

 

 "Markets are pricing in a higher path for short rates in the US, but also globally," Idanna Appio, a portfolio manager and senior research analyst at First Eagle Investments, said on Bloomberg TV. "Investors are beginning to reassess what neutral policy rates look like and there has been a gradual increase in those."

 Global bonds have been under pressure for months, with worries over elevated government spending in markets like Japan, the UK and the US prompting investors to seek higher compensation to own longer-maturity debt. At the same time, a surge in borrowing by US technology firms to fund artificial intelligence is potentially crowding out demand for sovereign bonds.

 Meanwhile, fresh hostilities between the US and Iran have raised concerns about prolonged disruptions to energy flows through the Strait of Hormuz, sending oil prices higher. Several current and former officials have said they expect the Middle East conflict to drag on for months.

 "The direction of travel is going to be higher yields from here," said Laura Cooper, global investment strategist at Nuveen. "Term premium likely has to be higher to compensate for this confluence of risks." 

 Traders are currently pricing an almost 70% chance that the Federal Reserve hikes rates by a quarter-point at its meeting this month, an increase from the European Central Bank is fully priced in for next week, while they're all but certain the Bank of Japan will hike later this month.

 What Bloomberg Strategists say...

 "G-10 fixed-income traders are paying closer attention to JGBs, with Australian bonds increasingly taking their cue from Japanese debt as much as from Treasuries. The near-term backdrop is toxic: sticky inflation combined with wide fiscal deficits across the US, Japan, the UK and France."

- Mark Cranfield, Markets Live strategist. Click here for the full analysis.

 Against this backdrop, the Bloomberg gauge of global debt has slipped 0.9% so far this year, following a 6.8% gain in 2025. An auction of 10-year Japanese bonds on Tuesday saw demand in-line with the 12-month average, while in Australia, the yield on similar-maturity debt surged to levels last seen in 2011.

 Economists at Barclays Plc and Societe Generale SA changed their Federal Reserve forecasts following Warsh's speech on Friday, predicting rate hikes this year that they previously had not anticipated.

 The bond selloff poses a fresh challenge for Treasury Secretary Scott Bessent, who last month unleashed more measures to keep yields contained, as well as for President Donald Trump, with higher borrowing costs threatening to weigh on the economy heading into the November midterms.

 The yield on 30-year US bonds is almost back to the levels seen before Bessent jolted markets last month with a decision to at least double the size of the Treasury department's bond buybacks. Surging yields also threaten to dent the appeal of equities, putting a global, artificial intelligence-led rally at risk. The MSCI All Country World Index is down about 1% since reaching a record high mid-August.

 Pressure on bonds is unlikely to ease, if seasonality is any guide. September and October have been the worst months for the global bond index over the last decade, with the gauge losing more than 1% on average in each of the two months during the period, according to data compiled by Bloomberg.

 "The bond market is not imploding, but it's sending a very clear memo that stickier inflation means higher for longer policy rates as the absolute minimum," said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities in Singapore. "I expect the market to continue selling off, fiscal deterioration and higher term premium are likely to remain front and center." ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- US 30-year bond enters September on worst stretch since 2006 

Not since 2006 have yields on the longest-maturity Treasuries been this high for this long, with a gaping budget deficit, another wave of corporate issuance and a potentially decisive Federal Reserve meeting set to keep investors wary of US debt in coming weeks.

 

The yield on the 30-year bond hit 5.34% in mid-August, its most elevated since 2007 and just 10 basis points away from the highest level in 22 years. As of Monday, the yield has settled above 5% on 55 days since the start of January, the most in any year since 2006, data compiled by Bloomberg show. It was at 5.28% on Tuesday.

 

Long-dated bonds are starting the month on a weak note, pressured by persistent inflation concerns as oil prices rise and ongoing fiscal challenges. Germany's 30-year yields touched the highest since 2011 on Tuesday, and the equivalent UK rate rose to a level last seen in 1998. Australian peers set a fresh record high on Tuesday, in data going back to 2016, while the yield on a Bloomberg index of global sovereign bonds climbed the highest in almost two decades.

 

Fresh hostilities between the US and Iran have raised concerns about prolonged disruptions to energy flows through the Strait of Hormuz, sending oil prices higher. Brent crude climbed above $92 a barrel on Tuesday as several current and former officials have said they expect the Middle East conflict to drag on for months.

 

At the same time, investors say the US budget worries that have weighed on government bonds won't dissipate anytime soon. And while Treasury Secretary Scott Bessent shocked markets last month by announcing expanded buybacks of older bonds in an effort to keep yields contained, his move will be countered by an expected $215 billion in corporate debt issuance in September. That follows record levels in August amid the AI revolution. 

 

Long-end yields are seen staying elevated "until entitlement reform changes the deficit picture," said John Briggs, head of US rates strategy at Natixis North America. "Buybacks are a drop in the bucket."

 

September's Fed meeting will test Chairman Kevin Warsh's determination to raise interest rates in the face of stubborn inflation, which has been lifted by a resilient economy and war-driven energy prices. The selloff in longer-maturity debt is expected to gain momentum if the central bank hesitates in acting.

 

Traders are pricing in some 17 basis points of tightening at the Fed's Sept. 15-16 meeting, or odds near 70%, following Warsh's hawkish speech at Jackson Hole last week. 

 

US August employment numbers due Friday and inflation data slated for release on Sept. 11 will offer a further snapshot of how price pressures are building in the economy.  

 

Because longer-dated bonds are more vulnerable to inflation concerns, signs that the Fed is holding steady even as consumer price growth accelerates would give investors more reason to avoid the beleaguered 30-year maturity. 

 

"If you want to get the long end down, you tighten rates," said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities. He said he expects the Fed to raise interest rates and is bullish on 10-year Treasuries and shorter-dated tenors. 

 

Others, however, have been betting on more weakness. Treasury options trading on Monday saw traders targeting much higher levels for 30-year yields, with one trade wagering they will jump to around 5.7% ahead of the contract's Nov. 20 expiry date.

 

Further complicating the picture is the niche position the 30-year bond occupies in the $31 trillion Treasury market. Demand for longer-dated Treasuries mainly comes from investors such as insurers and pension funds who seek to offset liabilities that extend across decades. Conversely, bond managers who prefer having less interest-rate sensitivity, or duration, in their portfolios tend to limit their long-end exposure. 

 

"Despite Treasury buybacks and other recent policy actions, investors remain reluctant to add duration," Bank of America rate strategists Meghan Swiber and Eleanor Xiao wrote in a note published Monday. "A shrinking official-sector bid leaves the market increasingly dependent on price-sensitive private demand to clear ongoing Treasury supply."

 

Some investors question how much further the long bond may fall, after yields have risen by around 65 basis points from their lows of the year. Briggs, of Natixis, has become "more neutral" at current levels after being bearish on the long end all year. 

The 30-year yield "still leaks higher, but you have come a long way in term premium and real yields, you don't have to go up at a high speed forever," he said.

 

Priya Misra, a portfolio manager at JPMorgan Asset Management, said the Treasury's buybacks may help bolster demand for the long bond, but "may well be dwarfed by the onslaught of supply from the AI buildout."

 

"We may be getting close to the peak in long-end yields, but there is uncertainty given all the cross currents at play," she said.