Bond Markets Plummet as Energy Prices Soar and Inflation Fears Rise
Global bond markets are experiencing a sharp sell-off as rising energy prices and inflation concerns push up borrowing costs to multi-decade highs. The Middle East conflict has led to higher oil prices, fueling investor fears about inflation and ballooning government debt.
The yield on 10-year US Treasury notes rose to a near three-year high of 4.81%, with further climbs towards 5% likely to unsettle jittery stock markets. Japan's 10-year yield is at a 30-year high, while Australia's 10-year government bond yields have reached their highest level in over 15 years.
Investors are demanding higher premiums for inflation, fiscal risks, and debt coming to market, said Charu Chanana, chief investment strategist at Saxo. Naka Matsuzawa, chief macro strategist at Nomura Securities, noted that hyperscalers' willingness to pay high rates is pulling up yields across the board.
The spectre of 'bond vigilantes', investors who seek to impose fiscal discipline on governments they perceive as profligate by demanding higher compensation for holding their bonds, has been raised. Ed Yardeni, president of Yardeni Research, said that if the US 10-year yield hits 5%, there will be strong demand for the bond.
Traders have priced in a rate hike in Europe next week and about a 68% chance of a US rate hike the following week. The rising yields have put the spotlight on Japanese Prime Minister Sanae Takaichi's aggressive investment plan, as well as Britain, France, and Germany where big-spending governments are being given a reality-check by their creditors.