The worsening sell-off in the bond market has driven the average yield on global government debt to within striking distance of 4 per cent, a level not seen since 2007.
The yield on the Bloomberg Global Aggregate Treasuries Index climbed eight basis points to 3.99 per cent on Wednesday, with US Treasuries among the main drivers of losses. Robust economic data and a weak auction for five-year US debt pushed yields across much of the curve to multi-year highs, while a bid-to-cover metric showed the auction was the second-weakest since 2018.
"The move is likely far from over," wrote ING analyst Padhraic Garvey. "It is not impossible that we sail through the coming months without yields at the long end climbing significantly again."
Losses have been compounded by the war with Iran, stubborn inflation and deepening fiscal concerns, reinforcing expectations that interest rates will remain elevated for longer. Investors are remaining cautious about government debt despite yields already being at raised levels.
The pressure extends well beyond fixed income. Higher borrowing costs are weighing on businesses and homeowners alike, while shrinking present values of future corporate earnings are also pressuring equities.
The yield on five-year US Treasuries broke above 5 per cent for the first time since 2007 on Wednesday. The ten-year recorded its largest single-day gain since the tariff shock on Liberation Day in April 2025. Strong economic data alongside sharply higher oil prices prompted traders to price in further Federal Reserve rate hikes.
"Inflation remains high and sticky in many places, labour markets are stretched for various reasons, and economies continue to grow robustly despite higher fuel and other prices," said Amy Xie Patrick, portfolio manager at Pendal Group. "Given all that, bonds are actually behaving rationally relative to economic fundamentals."
Investors demanded a yield of 5.033 per cent in Wednesday's five-year US auction — the highest since 2006 — with the issue price trading more than three basis points above the expected range set before the bid window closed.
Strategists at JPMorgan Chase and KKR see room for further rises in US bond yields, citing energy-driven inflation, large-scale government borrowing and the risk of additional central bank tightening.
