A global bond sell-off is intensifying, with government borrowing costs surging as oil prices hold above $100 a barrel. This market reaction is largely attributed to expectations that the US Federal Reserve will likely raise interest rates in October, with probabilities now around 70%. The rising yields are placing considerable strain on public finances worldwide.
This bond market turmoil is also reflected in other financial markets. Stock futures have dropped globally, and Treasury yields have extended to multi-year highs. Brent crude, a key global oil benchmark, has risen by more than 1%, and West Texas Intermediate (WTI) is up by 0.9%, as US-Iran talks show little progress, further fueling concerns about inflation and energy costs.
The sell-off was exacerbated by strong US economic data, which suggested the economy might be overheating, prompting traders to anticipate more aggressive actions from the Federal Reserve to cool inflation. This has led to a re-pricing across the entire bond curve, indicating a genuine re-tightening cycle. The higher discount rates for equities and increased borrowing costs for mortgages and corporations are expected to negatively impact risk assets.
The global impact is widespread, with bonds sliding in Japan, Australia, and New Zealand. The US 10-year yield reached 5.12% after a 15-basis-point surge, the biggest since April 2025. The 30-year Treasury bond yield approached 5.44%, a level not seen in over two decades. The dollar has also strengthened, hovering around levels last seen in July, as traders factor in additional interest rate hikes by the Federal Reserve, with some analysts forecasting three quarter-point hikes over 2027.
