On Tuesday, government bonds faced a major sell-off as persistent inflation fears continued to mount.
Subsequently, yields on government debt across the globe saw significant increases, implying reduced investor interest in sovereign debt due to an inverse relationship with bond prices, as reported by .
"It’s all about yields at the moment with some big or landmark moves again yesterday in a period where there continue to be doubts about whether the Fed can cut rates in 2025," commented Jim Reid, Deutsche Bank's head of research.
The US witnessed a noteworthy auction for 10-year Treasuries on Tuesday, which drew its highest yield since 2007, alongside upticks in yields on shorter-term debts. On the European front, the 10-year German bund yield escalated to 2.48 per cent, potentially marking its sixth consecutive weekly surge from around 2.0 per cent noted in early December.
In the º£½ÇÊÓƵ, the 30-year Gilt yield surged to levels not seen since 1998, and the benchmark 10-year Gilt yield also rose to 4.68 per cent, last recorded at this height in October 2023.
Heightened bond yields have come as a response to recent economic releases hinting that inflationary pressures might be more entrenched than previously anticipated by investors. One such indicator is a survey from the Institute for Supply Management, suggesting that input costs within the US services sector are accelerating at their quickest rate in over two years.
Mohit Kumar, an analyst at Jefferies, noted in his analysis that the increase in prices paid was widespread and not influenced by any one-off factors. "The rise in prices paid was broad based and the details did not show any one off factors which could have influenced the data," he wrote.
Meanwhile, separate data from the US labour market indicated a six-month high in job openings for November, suggesting strength in the world's largest economy. This led investors to scale back their expectations for the number of interest rate cuts by the US Federal Reserve this year.
The forthcoming nonfarm jobs report on Friday is anticipated to provide additional insights into the US economic trajectory. Despite the current sell-off in government debt, Kumar believes it is unlikely to persist, especially if the US labour market shows signs of weakening, potentially leading to swifter interest rate reductions.
"We are still in the camp that the current sell-off should not have many legs and see rates as close to their local peaks at current levels," he commented. However, Kathleen Brooks, research director at XTB, highlighted that investors should keep a watchful eye on public finance data.
"Bond vigilantes are not stalking the market yet, but they are watching from the sidelines," she cautioned.
