The darkness of the night has descended on the bond markets

In the US, Europe and Asia, yields on a number of government bonds rose to multi-year records. This has caused serious concern among investors and has affected the stock markets. Experts believe that rising government bond yields will make it more difficult for authorities in some countries to borrow new money needed to restore the economy.

Following the results of yesterday’s stock trading in the US, the Dow Jones index lost 430 points, falling by 1.3%. The S&P 500 and Nasdaq indices fell even further – by 1.4% and 1.9%, respectively. This was the reaction of stock markets to yesterday’s record rising yields on US government bonds. The yield on 30-year US Treasuries reached 5% for the first time since 2007, and the yield on 10-year securities also rose to a record since 2007, to 4.8%.

Experts explain an increase in yields on US Treasuries due to the ongoing policy of the US Federal Reserve to increase base interest rates as part of the fight against inflation.

The labor market data released yesterday, which did not meet the forecasts of US analysts, significantly increased the chances of a new Fed rate hike.

Another reason to expect another Fed rate hike was the events of last weekend, when the United States managed, as was expected, to avoid shutdown. This increased investor pessimism and caused a bond dump, which ultimately led to an increase in their yields.

Concerns about the American economy reflected and on government securities of other large developed countries. The yield on German 10-year bonds rose to 3%, the highest since 2011. The yield on Japanese 10-year bonds rose to 1%, the highest level since the beginning of this year. By British Government bond yields rose to a 25-year high today.

Uncertainty is causing nervousness in the markets – central banks of leading countries are determined to continue raising rates to fight inflation, but rising yields make new borrowing more expensive for authorities to service.

According to Politico, the US Treasury alone plans to borrow $1.85 trillion from the markets by the end of the year to cover budget needs. A similar situation is typical for a number of other countries. “The sale of long-term government bonds has also begun in Europe,” the British newspaper quotes The Guardian Suzanne Streeter, head of market research at Bristol financial services company Hargreaves Lansdown. Investors are demanding higher interest rates as a condition for buying government bonds. All this gives ministers less room for maneuver when it comes to measures to improve the lives of people and businesses, such as tax cuts for the private sector or higher wages in the public sector.”

Evgeny Khvostik