The global bond market remains under pressure as bond yields continue to rise. Analysts warn of new risks to assets and increasing inflation concerns.
Interest rates are continuing to climb. The sell-off in government bonds continued on Friday. In the Eurozone, yields rose for the seventh consecutive week. The yield on the benchmark 10-year German bund, which serves as a gauge for the Eurozone, reached 3.6114% on Thursday, the highest level since June 2009. On Friday, it remained above the previous day's close.
The sell-off also affected Asian markets. The yield on 10-year Japanese government bonds rose to 3.121% by the end of the week, the highest level since 1996. The yield on 5-year Japanese government bonds reached a record high.
In the US, the world's largest bond market, the yield on 30-year government bonds climbed to 5.5016%, the highest level since 2004. The yield on 10-year US government bonds reached 5.2251%, a 19-year high. Short-term bonds reflect investors' expectations for interest rates, while longer-term bonds show their willingness to finance government debt over the long term.
Analysts pointed out that investors' psychological 'pain threshold' for US bond yields may be shifting from five to six percent. 'The world's bond markets are sounding the alarm, and ignoring that could prove very costly,' said Nigel Green from financial advisor deVere. 'Once risk-free rates in the world's largest economy exceed five percent, every asset class worldwide needs to be revalued. Stocks, real estate, consumer loans, emerging market bonds - nothing is immune.'
Concerns about inflation are being fueled by rising oil prices. Brent crude oil has gained around 50% since the beginning of July. Additionally, rising government spending is exacerbating fears of persistent inflation.
Meanwhile, economic data shows the economy is unexpectedly robust, causing investors to increasingly worry about the future monetary policies of major central banks. 'The bulk of the yield increase since March is due to expectations of higher interest rates in the US,' said Gennadiy Goldberg, chief strategist at TD Securities. Central banks, including the Fed and others, are attempting to curb inflation by raising interest rates without stifling the economic engine.
