Bond Markets Are Nearing a Painful Inflection Point
This week’s bond meltdown has sent the mean 10-year borrowing cost for Group of Seven countries to its highest in more than a decade, with the average yield surging above 3%. What happens next could set the tone for financial markets and the global economy for years to come. And your guess is as bad as mine as to where fixed-income markets go from here.
It’s not just traders and investors who will feel the pain from the climb in government bond yields. Companies seeking to borrow to invest and house buyers trying to afford a mortgage will all have to cope with interest rates that are far higher than the world has become accustomed to for much of the 21st century.
The 10-year US Treasury yield — the benchmark for global debt markets — rose to its highest level since October 2008 this week. Germany’s 10-year yield, which sets the pace for euro zone fixed-income markets, reached its highest point in more than a decade. Thanks to a push from a giant tax-cut package from a three-week-old government, the 30-year UK gilt yield surged to its highest in almost a quarter of a century before the Bank of England intervened to ease the pressure. The climb in government debt costs has been relentless.