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Global Bond Yields Surge as Markets Brace for Higher Rates and Persistent Inflation

  • Bond yields have surged globally, with key levels broken as markets price in higher interest rates for longer. Larry Fink sees 10-year Treasury yields reaching 5% or more.

  • Inflation remains high and embedded, forcing central banks like the Fed and ECB to maintain a hawkish stance despite recession worries.

  • Long-dated government bonds have borne the brunt, with huge selloffs in 30-year Treasuries, German bunds, and Japanese JGBs.

  • Some see the bond rout going too far, but others believe high yields are the new normal as pre-2008 trends reassert themselves.

  • Even if inflation eases, challenges remain, like BOJ policy normalization and rebuilding of term premiums that could steepen yield curves further.

fortune.com
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### Summary The recent market sell-off and rising yields are not driven by rising inflation expectations but by rising real yields across the world, signaling a return to pre-Global Financial Crisis conditions. ### Facts - Real bond yields are returning to their natural state as the easy credit environment since the Global Financial Crisis is reversing. - Rising inflation expectations typically drive yields, but the recent market sell-off is caused by rising yields for long-term rates. - Central banks are hiking rates and removing liquidity, reducing the supply of credit and raising interest costs. - Rising demand for capital and geopolitical tensions are also contributing to the rise in yields. - Market conditions now are more like they used to be before the Global Financial Crisis, while the post-2008 to 2022 era was the unusual period. - Rising real rates are expected to impact public spending, household borrowing, and asset values, while pensions and savers may benefit. - The return to positive real yields is a big shift closer to the historical baseline. - Despite recession talk, there are few signs of a recession in the US, with GDP growth forecasted at 5.8% for Q3. ### Emoji - 💸 The era of cheap debt might be over, and it can lead to a big shift for investors. - 💰 Real bond yields are returning to their natural state. - 📉 Rising yields for long-term rates are driving the recent market sell-off. - 🌍 Real yields are rising across the world. - 📉 The conditions we're seeing now are more like they used to be before the global economy imploded. - 🏢 Assets boosted by easy credit will need to correct, including real estate. - 💼 Rising real rates will impact public spending, household borrowing, and asset values. - 💡 Pensions and savers may benefit from a rising real rate environment. - 📉 Excess speculation can easily occur if stability requires pursuing significant risk. - 🚀 The return to positive real yields is a big shift closer to the historical baseline. - 🔍 Few signs of a recession in the US, with 5.8% GDP growth forecasted for Q3.
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The recent surge in global bond yields, driven by rising term premiums and expectations of higher interest rates, signals the potential end of the era of low interest rates and poses risks for heavily indebted countries like Italy, as well as Japan and other economies tied to rock-bottom interest rates.
The recent surge in bond yields is causing a significant shift in markets, but there is still optimism among investors.
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