Global bond yields surge to multi-year highs as inflation, borrowing concerns mount

Mumbai: A sell-off in sovereign debt pushed government bond yields across major economies to multiyear and, in some cases, multi-decade highs in the past month, as investors demanded higher returns to compensate for elevated government borrowing, sticky inflation and uncertainty over the interest-rate outlook.

The US 10-year Treasury yield was at its highest since 2002, while Japanese government bond yields touched levels last seen in 1996. The repricing reverberated across global fixed-income markets.

India has not been immune, with the benchmark 10-year bond yield climbing to a four-year high of 7.50% in October before easing, to close around 7.24% on Thursday.


Pressure on global bond markets has eased in recent weeks, with investors finding elevated yields attractive for fresh buying. Easing of the US-Iran war and the subsequent moderation in crude oil prices have also supported the recovery in government bonds by tempering inflation concerns.

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However, the outlook for global bond markets remains uncertain. Persistent inflationary pressures and expectations of tighter monetary policy across major economies are likely to keep yields elevated. Meanwhile, concerns over rising government borrowing requirements and fiscal sustainability are expected to sustain higher term premiums, limiting the scope for a meaningful decline in long-term yields, according to a Morgan Stanley report last week.

Indian yields too are expected to be volatile. "The 10-year G-Sec yield at around 7.55-7.60% offers an attractive entry point from a medium-term perspective. However, given the possibility of near-term swings in yields, accumulation should be staggered over the next three months rather than undertaken at a single point," according to Devang Shah, head of fixed income at Axis Mutual Fund.

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The US 10-year Treasury yield touched 5.34% in October, its highest since 2002. The UK 10-year gilt yield rose to 5.378% on September 10, the highest since July 2007. It subsequently climbed to 5.52% on October 8. Germany's 10-year Bund yield touched 3.65% in early October, its highest since June 2009, while Japan's 10-year government bond yield hit 3.13% on October 1, a level last seen in 1996, according to Bloomberg.