Global bonds came under heavy selling pressure again on Thursday, sending borrowing costs from the United States to France and Japan to multi-decade highs and underscoring mounting concerns for policymakers.
Bargain hunters stepped in during the late US morning, however, helping the market stabilize. The US benchmark yield retreated to around 5.26%, as Treasury yields across the curve declined. Still, analysts said there could be scope for further selling.
Higher rates raise financing costs for companies and mortgage borrowers and force governments to spend more on interest payments.
Bond yields, which rise when prices fall, have soared globally as surging energy costs fan inflation. The boom in artificial intelligence and data-center construction have increased competition for capital and raised expectations about economic growth and where short-term interest rates will settle.
The US 10-year Treasury yield, a yardstick for global borrowing costs and asset prices, earlier rose to 5.34%, its highest since 2002, after posting its biggest quarterly rise in yields this century for the three months ending in September.
“As yields have crept higher, that is going to tighten financial conditions and could increase the risk of a slowdown,” said Danny Zaid, portfolio manager at TwentyFour Asset Management in New York.
“But fundamentals right now — the broader economy — still look very strong even though we do know that we have a K-shaped economy and the lower cohort has been suffering for quite some time and there is need for relief from higher oil prices.”
A K-shaped economy refers to when the economy performs unevenly, with wealthier individuals thriving, while lower-income workers continue to struggle.
Markets are responding to years of above-target inflation, said HSBC’s chief Asia economist Fred Neumann, who added that “until monetary tightening is delivered, bond markets will demand a premium for longer-term borrowing.”
FRANCE IN FOCUS
France is near the top of bond investors’ minds. Its government is presenting a 2027 budget bill on Thursday which could struggle to get unpopular belt-tightening measures through parliament.
In a sign of the challenge, French 10-year borrowing costs hit their highest since 2002 on Thursday, trading close to the symbolic 5% level after turning in its worst quarterly performance since 1987 in the September-ending quarter.
The gap between French and German 10-year borrowing costs is trading around its highest since the euro zone debt crisis of the 2010s, and the cost of insuring France’s debt against the risk of default is at its highest since 2013.
Source: money.usnews
