Bond markets are pushing up borrowing costs worldwide, potentially reducing the need for central bank rate hikes to control inflation. Yields have surged to multiyear highs after weeks of selling, tightening financial conditions even without policy action. Traders have pared rate-hike expectations, with the amount priced into swaps across eight major economies falling by almost 200 basis points since mid-September.
The bond selloff continues amid fiscal spending concerns from the US to Japan and France, and AI-related debt issuance soaking up capital. Higher borrowing costs are spilling into mortgages and junk credit, delivering economic restraint central banks would otherwise seek through higher policy rates. Ken Orchard of T.
Rowe Price, overseeing $1.9 trillion, said: “The more tightening markets price, the tighter financial conditions become… the less tightening central banks may ultimately need — or be able — to deliver.” Traders now price in a combined 539 basis points of rate hikes across eight economies, down from 717 basis points in September. The biggest pullbacks are in Australia, the euro area (due to France’s fiscal outlook), South Korea, and Canada. Global government bond yields have climbed above 4% to the highest since 2000.
Yuxuan Tang of JPMorgan Private Bank said markets may be overpricing further hikes given downside growth risks. Deutsche Bank sees opportunities in US Treasuries, while Barclays notes markets have already taken pressure off the Federal Reserve. Some warn markets may still be underpricing hike risks due to oil above $100 a barrel and geopolitical tensions.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing