(Bloomberg) — The selloff in longer-maturity government bonds has pushed up yields to levels last seen during the global financial crisis, and market participants are warning the move has room to run.
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A surge in global inflation expectations has brought the average yield on sovereign debt due in a decade or more to the highest since July 2008, a Bloomberg gauge shows. It comes as the war in Iran chokes off the vital Strait of Hormuz waterway, sending Brent crude above $110 a barrel.
Global long-dated bonds have been under pressure on concern the jump in energy costs will feed into everything from plastic bottles for soda to gasoline for tractors needed to harvest crops. Add in worries over government spending in Japan, the UK and the US, as well as an artificial intelligence boom supporting growth in the world’s biggest economy, and investors have been seeking greater compensation to own longer-maturity debt.
“We’re seeing a broader repricing of duration driven by fiscal realities, persistent inflation risks and some political uncertainty, as well as a more demanding investor base,” said Patrick Coffey, head of a research group at Barclays Plc in London. “It’s hard to point to a near-term catalyst outside of the reopening of the Strait of Hormuz that could fully reverse the current selloff.”
Yields on long-dated bonds dipped around the world on Wednesday, yet remain near recent highs. Those on the US 30-year fell one basis point to 5.17% from a 2007-high on Tuesday. UK long yields fell six basis points to 5.74% after touching the highest since 1998 on Friday.
Many investors anticipate the respite will be short lived.
“I do think chances are high for 10-year US yields to break through the 4.75% next, said Monica Hsiao, chief investment officer at Triada Capital Ltd. in Hong Kong. “The main issue is longer term oil prices and the war not seeing a way to off-ramp into peace.”
In addition to macro factors, technicals are also driving declines with algorithms on overdrive on systematic selling, she added.
The slide in long-dated bonds has been painful. The gauge of global bond returns that mature in a decade or later has slumped 4.6% in 2026. It was up about 3% for the year at the end of February when the US and Israel launched their attacks on Iran.
“We’re very, very short duration at this point,” said Idanna Appio, portfolio manager at First Eagle Investments, who expects the move higher in long-dated yields to go further. “The fiscal dynamics look ugly across most advanced economies.”
The bond declines point to a realization that inflation may be sticky and policymakers may turn more hawkish, according to Eugene Leow, a senior rates strategist at DBS Bank Ltd. in Singapore. Economic optimism from sizable capital expenditures in the private sector could also be helping push yield expectations higher, he wrote in a research note.
“In any case, the bias to global yields remain to the upside in the immediate term,” he said.
–With assistance from David Finnerty and Alice Atkins.
(Updates with Wednesday market moves in 5th paragraph, investor comment in 10th)
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