Global Bond Selloff Intensifies Amid Shifting Interest Rate Expectations
A sudden shift in investor sentiment has sparked a global bond selloff, with yields rising from Australia to Japan. The trend is driven by growing uncertainty over US interest rate cuts, which could have far-reaching implications for debt markets worldwide.
Rising Yields in Asia-Pacific
In Australia, 10-year yields jumped as much as 15 basis points, while New Zealand’s yields climbed seven basis points. Japan’s 10-year yields rose three basis points to 0.985%, a two-month high. These moves followed an 11-basis-point jump in similar-maturity US yields on Monday.
Fed Rate Cut Expectations Under Scrutiny
At the heart of the selloff is investor skepticism about Federal Reserve rate-cut expectations. A robust US economy, firming odds of a Donald Trump election victory, and cautious comments from Fed officials have muddied the prospects of gains for bond traders. Ed Yardeni, founder of Yardeni Research, predicts US 10-year yields will reach 4.5% early next year, with a possible rise to 5% depending on election results.
Market Strategists Weigh In
Apollo Management and T. Rowe Price are among those seeing the central bank potentially keeping rates unchanged at its next meeting. Garfield Reynolds, Markets Live strategist, notes that Treasuries may struggle in the coming months due to a strong upward bias for yields as the US economy stays resilient and supply concerns grow.
Ripple Effects Across Global Markets
The repricing of rate paths is also emerging elsewhere. Swaps are signaling the Reserve Bank of Australia will cut its benchmark rate by only about 50 basis points through to the end of August next year, half of what was priced in after the September policy meeting. Similarly, traders brought forward their forecast for the next Bank of Japan rate hike to June.
Emerging-Market Bonds Feel the Heat
Indonesia’s five-year yield climbed six basis points, reflecting the broader selloff in emerging-market bonds. However, not everyone expects the selloff to gain momentum. The Fed and Reserve Bank of New Zealand are in the midst of rate-cutting cycles, which should generate an underlying bid for bonds.
Election Uncertainty and Middle-East Tensions Loom
For now, issues around US debt supply, election hedging, and markets front-running the risks of a Republican “red sweep” at the polls may keep weighing on bonds. BlackRock Investment Institute is among those underweight shorter-maturity Treasuries, citing an ageing workforce, persistent budget deficits, and the impact of structural shifts such as geopolitical fragmentation.
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