Tumbling global government bonds put yields on brink of 4%

Global government bonds are on a steep decline, with yields edging closer to the 4% mark, a threshold last observed in 2007. The Bloomberg Global Aggregate Treasuries index saw yields rise by eight basis points to 3.99% on September 23. The surge in yields across the curve is attributed to robust economic data and the second-worst US five-year debt auction since 2018.

ING Groep's regional head of research, Padhraic Garvey, predicts the trend may persist for months. The downturn is exacerbated by ongoing tensions in Iran, persistent inflation, and fiscal worries, heightening expectations of sustained higher interest rates and dampening investor appetite for government debt, even with yields at elevated levels.

The impact extends beyond bonds, as higher yields increase borrowing costs for businesses and consumers, and erode the value of future corporate earnings, putting stocks at risk. Inflation remains high and persistent in several regions, while labor markets are tight due to factors like rising fuel prices, yet economies continue to grow.

Strategists at JPMorgan Chase & Co and KKR & Co anticipate further US yield increases as energy-driven inflation, heavy government borrowing, and the likelihood of additional central bank tightening persist. As of September 23, US five-year yields surpassed the 5% mark for the first time since 2007, and 10-year yields surged to their highest level since the April 2025 tariff shock.

The ICE BofA MOVE Index, tracking US bond market volatility, reached its highest level since March, indicating heightened market turmoil.