Global bond markets have experienced a tumultuous period, initiated by surging French government bond yields amidst domestic protests and renewed government spending pledges. Yields on French OATs rose 0.12 per cent, testing levels not seen since 2002, with the spread to German yields widening. This instability quickly spread, pushing Greek and Italian government bond yields higher and weakening the euro against the US dollar. Across the Atlantic, Wall Street felt pressure as the 10-year US Treasury yield surged to 5.36 per cent, its highest since April 2002, while the 30-year yield climbed to 5.72 per cent.
Investors grew concerned that rising European yields could divert capital, further dampened by new debt raisings for the artificial intelligence sector and fresh Middle East tensions. Oracle, SpaceX, and Broadcom are reportedly seeking billions for chip acquisitions. Ironically, a US Treasury auction then offered a temporary reprieve. The sale of $US39 billion in 10-year US government bonds went better than anticipated, selling at a 5.3 per cent yield. Despite this, the outcome still represents the US government’s highest borrowing costs in 26 years, with the 10-year yield settling at 5.29 per cent by day’s end.
Yet, analysts like Danske Bank’s Jens Peter Sorensen predict both 10-year and 30-year US Treasury yields are heading towards 6 per cent, driven by the deluge of government and tech debt. France’s continued spending in response to unrest underscores persistent budgetary challenges. Broader market fears, including elevated crude oil prices, potential US strikes on Iran, and persistent inflationary pressures from resilient consumers, all signal continued volatility ahead for global bond markets.
