Global Bond Market Selloff Intensifies as Japan Takes Center Stage

The global bond market is experiencing a sharp selloff as investors reassess higher energy prices, inflation risks, and tighter monetary policy. Bond yields have surged across maturities, with short-term U.S. and euro zone yields reaching multi-year highs. The U.S. Treasury plans to at least double its longer-dated bond buybacks, starting with an operation scheduled for Wednesday.

Japan's 10-year government bond yield has climbed above 3% for the first time in three decades, making it a key focus for global bond markets. Investors are watching whether Japan's Government Pension Investment Fund will increase allocations to domestic bonds, potentially reducing its exposure to overseas debt and equities.

The U.S. inflation calendar takes center stage with producer prices due Thursday, followed by the closely watched consumer price index on Friday. Economists polled by Reuters expect August CPI to rise 0.4%, which could prove crucial in determining whether the Federal Reserve raises interest rates at its September 15-16 meeting.

The European Central Bank is widely expected to raise interest rates by another 25 basis points on Thursday, matching its June move. However, markets are pricing in another rate increase by December and one more next year, while economists increasingly expect the ECB to pause after Thursday.