Global Bond Markets Under Siege from Triple Squeeze

Global bond markets are facing a rare triple threat, pushing central banks worldwide into competitive monetary tightening. Stubborn inflation, government fiscal expansion, and an AI investment boom are combining to challenge bonds' core function as a safe-haven asset.

According to Bloomberg-tracked data across 32 swap markets, two-thirds have already priced in rate hike expectations, with seven major markets collectively anticipating roughly 400 basis points of tightening over the next year. South Korea leads the world with expected hikes exceeding 100 basis points; borrowing cost expectations in Japan, Canada, the eurozone, and the UK are all rising faster than in the US.

Investors are now facing a dilemma: bonds are supposed to cushion portfolios when equities fall or the economy takes a hit, but if central banks hike more aggressively, bonds may amplify losses, eroding the foundation of traditional diversification. The broader market implications are equally significant, higher rates compress equity valuations, tighten financial conditions, and disrupt currency carry trades.