A global gauge of government bond yields climbed to 3.72 percent on Monday, its highest since mid-2008, as a sell-off in sovereign debt spread across major markets.
Japan’s 10-year government bond yield broke through 3 percent for the first time since 1996, while Australian and US Treasury yields also pushed sharply higher. The moves followed a hawkish Jackson Hole speech from Federal Reserve Chairman Kevin Warsh, who said inflation had not eased enough to justify easing off tight policy, and a fresh spike in oil prices after renewed US-Iran hostilities raised fears of prolonged disruption to shipping through the Strait of Hormuz. Brent crude pushed above $91 a barrel on the news.
Nigel Green, chief executive of the financial advisory firm deVere Group, said the breadth of the move across unrelated markets was the bigger signal for investors than any single data point. “When Tokyo, Canberra and Washington are all repricing debt at the same time, that’s a huge shift in what it costs governments and businesses to borrow anywhere in the world, not a coincidence,” he said.
Green argued the sell-off reflects growing investor unease about government spending as much as inflation itself. “When bond markets start demanding a premium to lend a country money for the long haul, that’s a verdict on fiscal discipline as much as interest rates,” he said, pointing to rising borrowing costs in Japan, the UK and the US alike.
Contrary to the narrative that a safe-haven rush is now underway across asset classes, gold has actually pulled back in recent sessions rather than rallied. The metal has fallen toward the $4,350 to $4,450 range after Warsh’s remarks lifted expectations of a September rate hike, well below the record above $5,600 an ounce it hit in January. Green cautioned against investors chasing gold after a rally in any case, saying entering a trade “after the panic” tends to lock in the worst price.
On the question of whether the sell-off means a Fed rate hike is now certain, Green was more measured, noting that bond markets often move faster than the central banks they are trying to anticipate. “Yields have already done the Fed’s job for it without a single vote being cast,” he said, adding that investors who overreact to a single speech risk being wrong on both the call and the timing.
His broader advice to clients rattled by the swings centres on reducing exposure to long-dated debt. “Every extra year of maturity on a bond right now is an extra year of exposure to a market that’s clearly still finding its floor,” he said.
This article reports market commentary from a financial services executive and does not constitute investment advice.
