Key facts
- Global bonds are on track for their worst month in years due to deteriorating government finances, a glut of issuances, and rising inflation.
- Benchmark 10-year US Treasury yields are near their highest point since 2007, holding near 5.2383% in Asia.
- Yields in Japan are hovering near multi-decade highs, while German and French 10-year government bond yields hit 17-year and 18-year peaks.
- Equity markets have remained largely resilient, supported by upbeat corporate earnings and AI hype.
- The US dollar is on track for a monthly gain of 2%.
- Oil prices rose, with Brent crude futures at $103.16 a barrel and US crude at $89.49.
Global bonds are experiencing a significant downturn, on track for their worst month in years, driven by a combination of deteriorating government finances, a large volume of new debt issuances, and persistent inflation exacerbated by elevated energy costs due to the ongoing Middle East conflict. Benchmark 10-year US Treasury yields have surged, nearing levels not seen since 2007, impacting global borrowing costs.
Despite the sharp rise in bond yields, equity markets have shown remarkable resilience. The MSCI's broadest index of Asia-Pacific shares excluding Japan saw a modest rise, while major indices like Japan's Nikkei and South Korea's Kospi also posted gains. Futures for European and US indices also pointed to a higher open. This strength in stocks is attributed to robust corporate earnings, a generally strong global economy, and continued enthusiasm surrounding artificial intelligence.
However, the rise in risk-free rates is increasing refinancing costs for companies and potentially weighing on economic growth. Analysts suggest that markets may be moving towards a structurally higher-yield environment, making a return to the ultra-low yields seen after the Global Financial Crisis less likely. In currency markets, the US dollar has strengthened against major currencies like the euro and sterling, partly due to higher US yields, while the yen has steadied amid intervention fears.
Commodity markets saw oil prices rise, with Brent crude futures trading above $103 a barrel and US crude near $89.50, both set for monthly gains amid concerns over prolonged supply disruptions from the Middle East.