The sell-off in US bonds has caused huge waves in the global bond market! The global average yield is approaching the 4% mark, and Japan's 10-year period hits a 30-year high

The Zhitong Finance App learned that on Thursday, the decline in global government bonds intensified, driving the average yield close to 4%, a level not seen since 2007. On Wednesday, the Bloomberg Global Composite Treasury Index yield rose 8 basis points to 3.99%. US bonds are the main drivers of this round of decline. Strong economic data and a five-year US bond auction, which is the second worst since the data was available in 2018 according to a certain indicator, have driven most term yields to multi-year highs.

On Wednesday, the yield on US 5-year Treasury bonds surpassed 5% for the first time since 2007, while the 10-year yield recorded the biggest increase since the “Liberation Day” tariff impact in April 2025. Strong economic data and surging oil prices prompted traders to increase their bets on the Federal Reserve's further tightening policy. The swap market now fully reflects the 25 basis point rate hikes three times in the next year, and has heavily hedged against the fourth rate hike. This would raise the Federal Reserve's target interest rate to a maximum of 5%. The yield for winning the $70 billion 5-year US Treasury auction on Wednesday was the highest since 2006.

Increased volatility has fueled pessimism. The ICE BofA MOVE index, which measures the volatility of the US bond market, rose to its highest level since March on Wednesday.

Padric Garvey, head of American research at ING Group, wrote in the report: “This trend is probably far from over. Nor is it impossible that long-term yields will not see another sharp rise in the next few months.”

Pressure spread to Asia on Thursday. The yield on policy-sensitive Australian three-year government bonds jumped 13 basis points to 5.07%, the highest since May 2011. At one point, New Zealand's two-year yield climbed 17 basis points to just under 4%.

The 10-year yield on US bonds soared to a 19-year high, and the yield on Japan's 10-year treasury bonds rose to a 30-year high, and the weakening yen further heightened market concerns about inflationary pressure.

The yield on the benchmark 10-year Japanese treasury bond rose 8 basis points to 3.055%, the highest since August 1996. The 30-year yield rose nearly 7 basis points to 4.134%. The 5-year yield rose 7 basis points to 2.345%, a record high.

UOB stated in the report: “This round of sell-off was driven by a rebound in oil prices, better-than-expected US PMI data, and weak demand for the $70 billion 5-year US bond auction. As a result, the yield on 5-year US bonds rose above 5%.”

Earlier this month, Japan's benchmark borrowing costs had risen to a 30-year high, after US Treasury Secretary Scott Bessent hinted that he expected Tokyo and the Bank of Japan to take action to support the declining yen.

As the war in Iran continues, inflation persists, and fiscal concerns intensify, markets have strengthened their bets that interest rates will remain high for a longer period of time, and investors remain wary of government bonds even when yields are already high. The pain is far more than bonds. Higher yields are driving up borrowing costs from businesses to homeowners, while also eroding the present value of future corporate profits, putting pressure on the stock market.

Amy Xie Patrick, fund manager at Pendal Group, said, “Inflation is still high and stubborn in many places, and the labor market is tight for various reasons. Despite rising fuel and various prices, the economy is still growing well. Given all of this, bonds are actually rational compared to economic fundamentals.”

Strategists at J.P. Morgan Chase and KKR believe there is room for further growth in US bond yields as energy-driven inflation, massive government borrowing, and the central bank's possible further tightening policies continue to ferment.

TD Securities strategist Hans Mikkelsen said, “Most fixed-income investors would love higher yields, but they want them to stay there — they're afraid of a takeover knife.”

Chris Weston, head of research at Pepperstone, said, “It's not just an inflationary shock. The focus has always been on the crazy sell-off and buyers' strike on the US Treasury curve.”