A global selloff in bonds intensified, with US Treasury yields surging to their highest levels in almost two decades. The US 10-year yield reached 5.12% in Asian trading after a 15-basis-point jump, the largest since April 2025. The 30-year Treasury bond yield approached 5.44%, its highest in over two decades. This surge was primarily attributed to strong US economic data and weak demand at a five-year note auction, which saw yields surpass 5% for the first time since 2007. The average yield on global government debt is now just shy of 4%, a level not seen since 2007.
This bond rout has global implications, with losses in Wall Street spreading to the Asia-Pacific region, affecting bonds in Japan, Australia, and New Zealand. Japan's 10-year government bond yield climbed to 3.055%, its highest since August 1996, while its 30-year yield rose to 4.125%. Australian three-year government debt yields jumped 13 basis points to 5.07%, the highest since May 2011, and New Zealand's two-year yields increased by as much as 17 basis points. The yield gap between Chinese and US 10-year sovereign bonds also widened to a record level, raising concerns about accelerated capital outflows and a weaker yuan.
Analysts, like Tony Miano of Wells Fargo Investment Institute, believe the market has entered a "genuine re-tightening cycle," leading to higher discount rates for equities, increased mortgage and corporate borrowing costs, and a higher bar for risk assets. The Federal Reserve's recent rate hike, bringing borrowing costs to a range of 3.75% to 4%, and indications from officials like Governor Michael Barr that further hikes are likely, have fueled expectations. Swaps now fully reflect three quarter-point hikes over the next year, with some hedging for a fourth, potentially pushing the central bank's target rate as high as 5%. The surge in US Treasury yields is also rattling South Korean markets, threatening to accelerate foreign capital outflows, weaken the won, and increase borrowing costs for households and businesses.
