Average global government bond yields reached 3.99% on Wednesday, approaching 4% to mark their highest levels since 2007 as falling US Treasury prices weighed on sovereign debt markets worldwide amid expectations of sustained high interest rates.
Sovereign yields climb across regions
According to the Bloomberg Global Aggregate Treasuries index, average global sovereign yields rose by 18 basis points. The move leaves global government bonds down 2.4% year-to-date, after climbing 6.8% last year.
Debt markets weakened across the Asia-Pacific region during the session. Australian 3-year government bond yields climbed 13 basis points to 5.07%. New Zealand 2-year government bond yields gained 17 basis points to reach approximately 4%.
“Inflation remains high and stubborn across many regions, labor markets remain tight for various reasons, and despite rising fuel and other costs, the economy continues to grow at a solid pace,” said Amy Xie Patrick, an investment manager at Pendal Group.
Treasury pressure and volatility rise
The US 5-year Treasury yield breached 5% on Wednesday as the US Treasury conducted a $70 billion auction of 5-year paper, with market attention focused on estimated US government debt of $40 trillion.
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The ICE BofA MOVE index measuring US bond market volatility rose to its highest level since March. Swap markets fully priced in three 25-basis-point interest rate hikes over the next year alongside hedging for a possible fourth hike.
“Most fixed income market participants welcome higher yields, but they want those yields to be stable due to fear of buying sharply depreciating assets,” said Hans Mikkelsen, a strategist at TD Securities.
Carol Lye, a portfolio manager at Brandywine Global Investment Management, noted weak appetite in Asia, telling Bloomberg TV: “There is still minimal demand to support the Japanese government bond market, even among domestic investors including pension funds, banks, and life insurers.”
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