The selloff in global bond markets has worsened, with Japan’s 10-year bond yield hitting 3% for the first time since 1996.
The global bond market is struggling with rising concerns about energy-driven inflation, monetary tightening, and worsening fiscal conditions around the world.
Consequently, major economies such as the U.S., Germany, and the United Kingdom (U.K.) are seeing bond prices fall and yields spike.
In the U.K., bond yields surged 10-basis points overnight following a public holiday on Aug. 31. Yields in the European Union are at their highest level in 10 years.
Bond prices and yields move in opposite directions from each other.
Analysts say the bond market is reacting to the latest news that the U.S. and Iran have resumed fighting, pushing crude oil prices back above $90 U.S. a barrel and stoking inflation concerns.
Markets are pricing in higher interest rates as central banks are forced to try and dampen rising inflation.
Additionally, bond sales from technology companies that are raising money to fund their artificial intelligence (A.I.) investments is competing with U.S. Treasury bonds.
Efforts by the U.S. Treasury to intervene and lower rising yields on government bonds has largely failed, with the yield on both the 10-year and 30-year Treasury continuing to rise.
The situation appears to be the worst in Japan, where 10-year government bond yields are now at 3% for the first time in 30 years.
Japan’s central bank spent more than a decade repurchasing debt to keep interest rates artificially low. But that now appears to be unwinding.
The yield on the Japanese government’s five-year bond has hit a record high of 2.26% as demand and prices for the debt instrument decline.
Markets are also waiting to see if the U.S. Federal Reserve will raise interest rates at its next policy meeting on Sept. 16.
New Fed Chair Kevin Warsh has talked tough on inflation, but there are doubts about whether he will raise interest rates and run afoul of U.S. President Donald Trump who appointed him.
The rising bond yields are pushing stock markets around the world into the red to begin September.
