New York (CNN) — Investors’ concerns over a range of issues from inflation to hefty government deficits are driving a global bond market-sell off, creating a headache for policymakers and pushing up borrowing costs for governments and consumers.
Yields rise when bond prices fall. Investors are selling bonds, pushing prices lower and yields higher: The 30-year US Treasury yield on Tuesday hit 5.34%, its highest level since 2007.
The yield’s rise to a 19-year high is a part of broader unease in global bond markets. In France and Germany, 10-year bond yields this week hit their highest levels since 2008 and 2011, respectively. In Japan, the 10-year yield hit its highest level in 30 years.
Bond yields across various economies are surging to their highest levels in years while investors reckon with a mix of factors from stubborn inflation to rising government deficits to a wave of new corporate debt issuance.
On one hand, the sell-off reflects investors’ longstanding concerns about unchecked government spending and rising deficits. Yields are rising as investors demand more compensation for the risk of lending money to governments amid a backdrop of shakier finances.
But the bond market angst has been exacerbated this year by the US-Israeli war with Iran and the surge in oil prices. Brent crude on Tuesday rose above $91 per barrel. Investors are demanding a higher yield on bonds to compensate for the risk of inflation eating into their return.
The Iran war has also rocked bonds as investors weigh the impact of surging oil prices and the possibility that central banks could keep interest rates higher for longer, or even raise them, to combat inflation.
“The worsening situation in the Middle East is likely a factor in intensifying concerns over inflation and concerns over the US fiscal position,” Derek Halpenny, head of research for global markets at MUFG, said in a note.
“There remains zero appetite in the US for addressing the US fiscal position and that is increasingly weighing on the long end of the curve,” Halpenny said.
Government bonds are also under pressure from a wave of new debt from companies, including tech firms focused on artificial intelligence. Tech companies are issuing debt to fund the buildout of AI infrastructure, and those bonds are competing with government bonds for investors’ attention. Less demand for government bonds pushes prices lower, which pushes yields higher.
“Hyperscaler borrowing to fund AI infrastructure is competing for the same pool of buyers at the same moment governments need those buyers most,” Nigel Green, CEO at deVere Group, said in a note. “Crowd two urgent borrowers into one market and the price of patience goes up for everybody.”
A surge in bond yields can mean tighter financial conditions, which make it more costly to take out loans, and also puts pressure on the stock market.
The 10-year US Treasury yield on Tuesday rose to 4.74%, trading near the highest level of President Donald Trump’s second term. The 10-year yield helps set borrowing costs across the US economy, including mortgage rates.
The rise in bond yields creates complications for policymakers as governments are faced with rising debt. In the United States, the national debt is nearing a record $40 trillion.
For government bonds, the yield is the interest rate the government pays to bond investors – or the government’s cost of borrowing money. The global bond sell-off is pushing up the cost of borrowing for governments in the United States, the United Kingdom, France, Japan and others.
Higher yields can pull investors away from stocks, while also altering analysts’ calculations for the value of stocks. US stocks opened lower Tuesday morning: The S&P 500 fell 0.5%, and the tech-heavy Nasdaq Composite dropped 1.2%.
“Bonds are on the move: a sharp rise in government bond yields around the world may start to pose a threat to equity valuations and make life even trickier for deeply indebted nations and policymakers,” Neil Wilson, a strategist at Saxo Markets, said in a note.
The 30-year Treasury yield traded around 4.7% in February before the war with Iran before climbing in recent months above 5.3% to hit its highest level since 2007.
Wall Street is also adjusting to Kevin Warsh’s tenure as Federal Reserve chairman. While a change in leadership at the Fed can trigger some volatility in the bond market, Chairman Warsh’s approach of less communication has added to uncertainty about how the central bank will respond to inflation and other economic shocks. And his refusal to provide forward guidance leaves investors with less clarity about where US interest rates are headed.
The-CNN-Wire
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