Global Bond Market Turmoil Forces Fed to Consider Rate Hikes Amid Weakening Data

The global sovereign bond market is experiencing its worst sell-off in decades, driven by inflation concerns, fiscal expansion, and structural shrinkage in demand. Long-end yields are climbing sharply across countries, leading to a sharp rise in government financing costs.

The 30-year U.S. Treasury yield hit a nearly two-decade high of 5.33% on Tuesday, while the yield on France's 30-year government bonds rose to its highest level since 2008 and Germany's 30-year bond yields returned to their 2011 peak.

Rich Privorotsky, head of European cash trading at Goldman Sachs, warned that the Federal Reserve may be forced to raise interest rates despite weak economic data to flatten the yield curve and re-anchor long-term interest rates. He noted that the pressure on bond supply has become so significant that it is forcing the Fed to tighten policy.

Privorotsky attributed the surge in long-dated bond yields to structural forces, including ongoing geopolitical turmoil, government fiscal expansion, and shrinking demand from traditional long-term buyers. He pointed out that the scale of AI-related debt issuance has exceeded $489 billion this year, far surpassing original forecasts.