Investing.com — Government-bond yields in the developed world have seen a sharp increase in recent weeks, causing disturbance in the stock market and putting pressure on indebted countries.
The global bond rout could potentially hinder the actions of central banks, which have been reducing short-term interest rates. These rate cuts are intended to decrease borrowing costs for consumers and businesses.
The uptick in yields is making borrowing more expensive, leading to what Wall Street refers to as “tightening financial conditions”. The average 30-year U.S. mortgage rate increased to 6.9% last week.
According to Wall Street Journal’s analysis, analysts largely attribute the recent bond-market selloff to the U.S. yields on U.S. Treasurys, which increase when bond prices decrease, received their first significant boost in October following the release of robust monthly jobs data. This data dispelled concerns of an imminent recession.
Further contributing to the surge, Donald Trump won the U.S. presidential election, promising policies that many investors perceive as inflationary. Additionally, Federal Reserve officials altered their forecasts to fewer rate cuts in 2025.
Yields on ultrasafe government debt are primarily determined by investor expectations of what short-term interest rates will average over the lifetime of a bond. Yields on U.S. Treasurys are higher than those on German bonds due to lower rates in Europe, where the economy is weaker.
However, changes in yields typically exhibit correlation. When Treasury yields increase, investors looking for a better return may sell their German bonds to purchase U.S. Treasurys. This action can cause German bond yields to rise as well.
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