Global Bond Rout Accelerates as Policymakers Face Pressure to Raise Rates

The global bond market is experiencing a rout, with yields in Japan scaling levels not seen for over 30 years. Japanese policymakers are expected to raise interest rates to combat sticky inflation and lax fiscal policy. The ongoing U.S.-Israeli war on Iran has also driven up oil prices, weighing on bonds and stocks.

The dollar gained broadly against major currencies, with the yen falling through 160.00/$ for the first time since US-Japan intervention over a month ago. Major U.S. indices fell, with the S&P 500 down 0.7%, the Dow down 0.8%, and the Nasdaq down 1%. Consumer discretionary sectors saw significant losses.

Japanese yields hit record highs across the curve, while UK gilt yields reached their highest since 2008 and French and German yields rose to multi-year highs. U.S. 10-year yield hit 4.80%, its highest since January 2025. The global bond market is experiencing a sharp selloff, with investors betting that policymakers will raise interest rates to combat inflation.

BarrFed Governor Michael Barr stated that the Fed may have to act decisively if inflation doesn't moderate. This suggests a hardening position by the central bank, with traders betting on a 66% probability of a hike at the September meeting.