Global bond yields surged on Friday, with the benchmark 10-year Treasury yield climbing to 4.9708%, its highest in three years and just shy of the critical 5% level. This increase in borrowing costs for the US government's $40 trillion debt also saw 30-year yields hit a 19-year high of 5.3803%, impacting US mortgage rates and the housing market. Two-year yields rose to 4.5835% as markets priced in a 70% probability of a Federal Reserve interest rate hike this month to curb inflation.
The widespread bond sell-off is attributed to rising inflation concerns, surging oil prices (Brent crude hit $109 a barrel due to a widening Middle East conflict), and investor apprehension over the US's record national debt. The market's reaction also stems from a disappointing Treasury buyback program that fell short of its anticipated $6 billion value. This environment suggests that higher borrowing costs for governments, companies, and consumers may persist.
The global impact of the US bond market turbulence is evident in other regions. Australian three-year government bond yields surged 18 basis points to a 15-year high of 5.047%, while Japan's 10-year government bond yields rose 6 basis points to 2.97%. This was fueled by data indicating elevated wholesale inflation in Japan, bolstering the case for an imminent rate hike by the Bank of Japan. The overall market sentiment reflects a broader concern that expensive debt is here to stay, leading to a slump in share markets, with the Nikkei down 2.8%.
