Bond Yields Rise as Investors Demand Higher Returns Amid Geopolitical Uncertainty

The rise in US and global bond yields shows no signs of abating. Since August, pressures on bond markets have intensified due to growing expectations of Federal Reserve rate hikes and investors demanding higher returns for holding long-dated debt amid geopolitical uncertainty.

The 10-year Treasury yield has risen from 4.65%, 4.70% in early August to around 4.80%, its highest level since 2023, while the 30-year yield remains near a two-decade high of roughly 5.25%. The biggest move across the Treasury curve is at the 2-year tenor, which has risen another 20 basis points to above 4.35%.

The forces driving this trend are cyclical and structural. Changes in expected short-term interest rates have contributed 50 basis points of the overall 80-basis-point increase in the 10-year yield since late February. However, inflation expectations account for only about 10 basis points of the recent increase.

A persistently higher term premium, which provides a bridge from cyclical repricing to more persistent forces affecting yields, is also at play. The US government's growing need to borrow and the increasing imbalance between bond supply and demand are driving up long-term yields. Private investors must absorb a greater share of government debt, demanding higher returns in the process.