Global bond yields surged to their highest levels since the 2008 financial crisis this week, as a selloff in government debt accelerated ahead of rate decisions from the Federal Reserve, Bank of Japan, and Bank of England. Bitcoin showed resilience, trading higher, while gold also climbed. The moves come as strong US employment and growth data shifted rate expectations from cuts to possible hikes.
Yields climb across the board
US 30-year Treasury yields are near their highest level since 2007. UK gilts have recorded their longest streak of daily closes above 5% in almost two decades. Germany's 10-year yield reached its highest point since 2011. Japan's 40-year yield rose above 4%, and its 5-year yield hit a record since the maturity launched in 2000. Australia has the highest benchmark yields in the developed world. BlackRock's iShares 20+ Year Treasury Bond ETF fell nearly 5% in one month and has lost more than half its value since 2020.
What's driving the selloff
Strong US employment and growth data have shifted rate expectations from cuts to possible hikes. Traders assign roughly a one-in-three probability to a rate hike at the July 28-29 meeting. The ICE BofA MOVE Index, measuring bond market volatility, hit a two-month high. Bank of America stated that less guidance allows markets to price the action they believe the Fed should take. Barclays warned that a rate hike or a poorly explained hold could push parts of the yield curve higher.
Crypto and commodities hold up
Bitcoin edged higher, showing resilience amid the bond rout. Gold also rose, extending its recent gains. Brent crude briefly broke above $100 per barrel before falling 7% after Iran signaled a pause. Higher government bond yields raise the risk-free rate, pressuring equity valuations and corporate borrowing costs, but crypto has held relatively steady.
The week ahead
The Fed meeting is July 28-29. The article referenced 'Fed Chairman Kevin Warsh' but the current Fed Chair is Jerome Powell; this may be an error or alternative source. Moody's believes markets may have entered a period of structurally higher inflation, higher rates, and wider fiscal deficits. The bond market's next move will depend on how central banks communicate their decisions. The Fed's decision on Wednesday will set the tone for risk assets, including crypto, for the rest of the summer.
