The global bond sell-off deepened, driven by oil prices holding above $100 and strong US economic data, leading to a significant rise in government bond yields. This situation is straining public finances and has increased expectations for a Federal Reserve interest rate hike in October to about 70%.
Adding to the market turmoil, the US unveiled new tariffs. The surge in oil prices, along with these tariffs and continued protests in India by the youth-led "Cockroach" movement over educational system problems, contributed to investor jitters. The confluence of these factors highlights a challenging global economic landscape.
The US 10-year Treasury yield surged by 15 basis points on September 23rd, the largest increase since the April 2025 tariff announcement by President Donald Trump. This pushed the yield to 5.12% in Asian trading. The yield on five-year notes surpassed 5% for the first time since 2007 due to weak demand at an auction, while Brent crude oil pared an earlier rally to trade around $102.20 a barrel, a 0.9% decrease.
The average yield on global government debt is now nearing 4%, a level not seen since 2007. This increase in yields is leading to higher discount rates for equities, increased mortgage and corporate borrowing costs, and a higher bar for risk assets. Traders are now pricing in three quarter-point Federal Reserve rate hikes over the next year, with significant hedging for a fourth, potentially bringing the central bank's target rate to a range of 4.75% to 5%.
