Bond Markets Plunge as Inflation Worries and Fiscal Concerns Take Hold

Global bond markets are experiencing unprecedented turmoil as inflation and fiscal concerns take center stage. Long-term borrowing costs in major economies, including the US, Japan, Germany, France, and the UK, have reached their highest levels in decades. In the US, 30-year bond yields hit a 19-year high of 5.216% after oil prices rose above $90 per barrel, exacerbating inflation worries.

The turmoil has been fueled by rising budget deficits, concerns about clear communication from the Federal Reserve under new Chair Kevin Warsh, and competition for capital from AI hyperscalers. Kjersti Haugland, chief economist at DNB Carnegie, notes that bond markets are entering an era of uncertainty, leaving behind the post-financial crisis period of low rates and subdued inflation.

Rising borrowing costs ripple through economies as sovereign debt sets the benchmark for borrowing costs for companies and other loans. Some analysts believe that U.S. 10-year Treasury yields, currently around 4.74%, will attract attention at 5% and may be defended by the U.S. Treasury.