“Bond yields at the short end of the curve moved up as markets repriced central bank action in response to inflation. Long-end yields rose mainly because of higher risk premium, as the war in the Middle East continues to create uncertainty.”
- The US 30Y yields rose to 5.19%, the highest from 2007, while the 10Y moved above 4.5%. Yields across Europe and Japan also rose.
- Pressure on global long-term bonds has been driven by uncertainty over inflation, monetary policy and fiscal spending.
- All these factors support a more nuanced view of fixed income, with a close eye on the evolution of inflation and economic growth.
Global yields have risen sharply this year as the Middle East crisis has led to increased price pressures. This, coupled with changing views on central bank policy and persistently high fiscal deficits (the excess of government expenditure over revenues), has pushed long-end yields higher — US 30Y yields have reached their highest levels since 2007–08. Looking ahead, strains on public finances and heavy bond supply could continue to put pressure on yields. On the inflation front, we think the pass-through of the energy shock to the broader economy requires closer scrutiny. The key risk is not only the surge in energy prices, but also how long they remain elevated and their second-round effects on the economy. This is, of course, affecting central bank policy in the near term.
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