Black Swan Raid! U.S. Treasury Debt Sounds Alarm! Global government bonds suffer sudden sell-off
Global Treasury bonds are experiencing a big sell-off! In the past two days, U.S. Treasury yields have soared. On July 23, the 10-year U.S. Treasury bond yield rose 4 basis points to 4.71%, the highest level since January 2025. On July 24, U.S. Treasury bond yields continued to rise collectively. The 10-year U.S. Treasury bond yield rose to a new stage high of 4.7135%. The 30-year U.S. Treasury bond yield reached 5.1753%. This week, the government bond yields of the United Kingdom, Germany, and Japan also surged. The sell-off in Treasury bonds has been astonishingly large.
Global Treasury bonds are experiencing a big sell-off! In the past two days, U.S. Treasury yields have soared. On July 23, the 10-year U.S. Treasury bond yield rose 4 basis points to 4.71%, the highest level since January 2025. On July 24, U.S. Treasury bond yields continued to rise collectively. The 10-year U.S. Treasury bond yield rose to a new stage high of 4.7135%. The 30-year U.S. Treasury bond yield reached 5.1753%. This week, the government bond yields of the United Kingdom, Germany, and Japan also surged. The sell-off in Treasury bonds has been astonishingly large. The average yield on the Bloomberg Global Treasury Index, which tracks investment-grade government bonds, surged to 3.68%, surpassing its peak three years ago and reaching its highest level since the 2008 global financial crisis. The benchmark index is currently facing its biggest monthly decline since March. So, what exactly happened? The volatility in stocks has apparently masked the heat of the Treasury sell-off to some extent. However, the direction of Treasury yields affects stock valuations all the time. This week, alarm bells are ringing in the treasury bond market, and it may be that it needs to be taken seriously. This week, the UK's benchmark government bond yields closed above 5% for several consecutive days, setting a record for the longest time in the past 20 years; Germany's 10-year government bond yields reached their highest level since 2011; Japan's 10-year government bond yields were close to their highest levels since the 1990s. The U.S. bond market is under the most severe pressure in the past two decades: the 30-year yield has been above 5% for more consecutive times than at any time since 2007. On Thursday, the 10-year U.S. Treasury yield rose 4 basis points to 4.71%, the highest level since January 2025. Before the U.S.-Iran conflict that began in late February, the 10-year Treasury yield fell below 4%. The yield on the 10-year U.S. Treasury note determines borrowing costs across the economy, including 30-year mortgage rates. 30-year fixed mortgage rates averaged 6.58% this week, the highest level in nearly a year. It is worth noting that this big sell-off was not limited to long-term yields. Short-term Treasury bonds also suffered a sell-off, and yields continued to rise. The sell-off in the government bond markets of the world's major economies was so severe that the average yield on the Bloomberg Global Treasury Index, which tracks investment-grade government bonds, soared to 3.68%, surpassing its peak three years ago and reaching its highest level since the 2008 global financial crisis. The benchmark index is currently facing its biggest monthly decline since March. BlackRock's iShares 20+ Year U.S. Treasury Bond ETF, which is widely used by investors to invest in longer-dated U.S. Treasury bonds, has not been spared. The exchange-traded fund has fallen nearly 5% over the past month and has lost more than half its value since 2020. Analysts believe that rising oil prices, persistent inflation concerns and changing expectations for interest rate hikes are shaking the world's largest bond market, pushing up Treasury yields and increasing borrowing costs for consumers. There may be more geopolitical news coming over the weekend. In addition, a series of important central bank decisions will be announced next week, including those of the Federal Reserve, Bank of Japan and Bank of England. From a normal market perspective, further selling in the bond market would exacerbate concerns that global debt levels have become unsustainable, push up borrowing costs for global companies, and potentially trigger a rotation of funds away from the stock market. "There are a lot of the same reasons that are causing yields to rise in sovereign debt markets," said Thorsten Slok, chief economist at Apollo Global Management in New York. "Oil prices are rising. That's causing problems for the Bank of England, it's causing problems for the Fed, it's causing problems for the European Central Bank." Traders are also adjusting to changes in communications by new Fed Chairman Kevin Warsh aimed at reducing forward guidance - raising the possibility that policy changes could come sooner than expected. Market expectations for an interest rate hike at the Federal Reserve's policy meeting on July 28-29 have increased, and the market's current implied probability of an interest rate hike is about one-third.
"We know that Warsh doesn't want to provide forward guidance to the market, and that's fine," said Mark Cabana, head of U.S. rates strategy at Bank of America. “But that way, the market can better predict what actions the Fed should take, or what actions might force the Fed to consider raising interest rates.” What Warsh and his colleagues most need to do is convince the market that the central bank has inflation under control. Barclays analysts Anshul Pradhan and others wrote in a research report released on Thursday: "A rate hike will prompt the market to re-evaluate the final interest rate, thus flattening the yield curve. If the decision to keep interest rates unchanged is not fully explained, it is likely to lead to a rise in long-term interest rates." UK traders will be closely watching forecasts from the Bank of England and comments from Governor Andrew Bailey to confirm expectations for two interest rate hikes before the end of the year. The Bank of England is weighing the risk of inflation from rising energy prices against a weak labor market and sluggish economic growth. Australia's benchmark yields are the highest in the developed world and there are risks of rising further. Inflation data due next week and comments from Reserve Bank of Australia Governor Michel Bullock are likely to solidify expectations for a fourth increase in policy rates this year. "We believe we have entered a new macroeconomic environment," said Achi Sheth, chief credit officer at Moody's Ratings in New York. This means "rising structural inflation, with consequent rises in interest rates, wider fiscal deficits, and the potential for global uncertainty to materialize further and ultimately show up on government balance sheets."
"We know that Warsh doesn't want to provide forward guidance to the market, and that's fine," said Mark Cabana, head of U.S. rates strategy at Bank of America. “But that way, the market can better predict what actions the Fed should take, or what actions might force the Fed to consider raising interest rates.” What Warsh and his colleagues most need to do is convince the market that the central bank has inflation under control. Barclays analysts Anshul Pradhan and others wrote in a research report released on Thursday: "A rate hike will prompt the market to re-evaluate the final interest rate, thus flattening the yield curve. If the decision to keep interest rates unchanged is not fully explained, it is likely to lead to a rise in long-term interest rates." UK traders will be closely watching forecasts from the Bank of England and comments from Governor Andrew Bailey to confirm expectations for two interest rate hikes before the end of the year. The Bank of England is weighing the risk of inflation from rising energy prices against a weak labor market and sluggish economic growth. Australia's benchmark yields are the highest in the developed world and there are risks of rising further. Inflation data due next week and comments from Reserve Bank of Australia Governor Michel Bullock are likely to solidify expectations for a fourth increase in policy rates this year. "We believe we have entered a new macroeconomic environment," said Achi Sheth, chief credit officer at Moody's Ratings in New York. This means "rising structural inflation, with consequent rises in interest rates, wider fiscal deficits, and the potential for global uncertainty to materialize further and ultimately show up on government balance sheets."