Investing.com — Government bond yields across the developed world have seen a sharp rise in recent weeks, roiling stock markets and putting pressure on indebted countries.
A global decline in bonds could potentially derail actions by central banks that have been cutting short-term interest rates. These interest rate cuts are intended to reduce the cost of borrowing for consumers and businesses.
Rising yields make borrowing more expensive, leading to what Wall Street calls a “tightening of financial conditions.” The average 30-year mortgage rate in the US rose to 6.9% last week.
According to the Wall Street Journal analysis, aanalysts largely attribute the recent selloff in the bond market to U.S. Treasury yields, which rise when bond prices fall, got their first significant rise in October after strong monthly jobs data. These data dispelled concerns about an imminent recession.
Adding to the surge, Donald Trump won the US presidential election, promising policies that many investors see as inflationary. In addition, Federal Reserve officials revised their forecasts to fewer rate cuts in 2025.
Yields on ultra-safe government debt are primarily determined by investors’ expectations of what short-term interest rates will average over the life of the bond. Yields on US government bonds are higher than those on German bonds because of lower rates in Europe, where the economy is weaker.
However, changes in yields tend to show a correlation. When Treasury yields rise, investors looking for a better return may sell their German bonds to buy US Treasuries. This action may also cause German bond yields to rise.
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