This week, the bond market was focusing on increased yields that have sparked concerns about debt sustainability around the world, reflecting increased government borrowing costs. Deutsche Bank analysts describe it as a “slow and upsetting vicious cycle,” so the higher government bond yields increase the cost of a state serving its debt at a time when many major economies, from the state to the UK, France and Japan, are struggling to reduce financial flaws. Questions about the ability to do this put even more upward pressure on long-term bond yields as investors demand a higher risk premium and further exacerbate debt dynamics. It was heavily eased on Thursday and Friday, bringing it back from some of the eye-catching milestones at the beginning of the week. This includes peering into 30 years, with Japan’s 30 years, the UK’s 30 years and the US 30 years, for the first time since July. Yields move in reverse to bond prices. “The volatility we’ve seen over the past two weeks is probably something we’ve gotten a little used to in the bond market… The cooler heads win and the market works as it should. However, government borrowing costs remain much higher than they were a few years ago, both in the short and long term, in the wake of interest rate hikes and high inflation. This has the knock-on effect on the wider economy, where traders continue to monitor, as the fiscal challenges remain serious. One factor in the economy that is expected to be affected is the mortgage rate. Mortgages are affected by a variety of lender and borrower-specific factors, but the main drivers are interest rates and government bond yields in the central bank set. W1M fund manager James Carter said it constitutes an upward move in the 30th Treasury Department, particularly in the 30th Treasury Department. He said the popularity of 30-year mortgages on the US president’s yield on 30th yields has been exacerbated by US President Donald Trump’s attack on the Federal Reserve. Trump’s impact could help lower the short rates, Carter said. Fed officials are set to resume interest rate cuts this month after weaker employment data than expected. “However, the long end of the curve makes me panic that this is not what the White House typically does. This does not help with long-term inflation expectations. These yields could be if they continue to move higher. Traditionally, economic drag has been the case that the US bond market has served as a safe haven for investors during volatility and risk-off sentiment in the stock market. However, that relationship has been eroded this year, especially as the White House policy decisions on tariffs are the source of market anxiety. Historically, there is a broader inverse relationship between bonds and stock markets. “As yields rise, stock valuations tend to be under pressure when capital costs increase, reflecting higher yields from safer assets such as bonds and cash,” says Kate, senior investment analyst at Hargreaves Lansdown Marshall told CNBC. “That relationship is visible from time to time this year. Globally, higher yields have volatile stock markets. We have seen a fall in stocks in the UK and US recently.” “But the correlation is not perfect. There has been a period of time when stocks and bond yields rise together, so it reminds us that bond market signals can be interpreted differently depending on what is driving,” she added. One area that has been positively affected by government bond yields in recent years has been the corporate bond market, which allows companies to fund expansion, said Viktor Hjort, global head of credit and equity derivatives strategy at BNP Paribas. “High yields do a lot of positive things to the corporate bond market. It obviously attracts demand for the yield. It is expensive for businesses to borrow significantly and reduces supply as it encourages them to take considerable disciplinary action on balance sheets. “The bond side of government is a relatively high risk part of today’s market,” he added. However, Peel Hunt’s chief economist Kallum Pickering highlighted resistance to the business activities themselves from higher bond yields. “This applies to a progressive world. Just because there is no crisis in the bond market doesn’t mean that these interest rates don’t have economic consequences. They constrain policy choices, lock out private investments, and every six months, wonder if we’ll suffer a match of financial instability. As the economic drag from high yields is becoming so severe, periods of government austerity can actually have a stimulating effect, he continued. “You’ll give the market confidence, lower these bond yields, and the private sector will just sigh for bailouts and start distributing some of the strength of its balance sheet,” he said.
