Structural Changes in the Global Bond Market as Long-Term Treasury Yields Reach Decades-Highs

On September 26, long-term government bond yields in major global economies have risen to their highest levels in decades. The yield on Japan's 10-year government bonds has reached a new 30-year high, while government financing costs in major markets like the United States have also hit levels not seen since before the global financial crisis. Despite the rise in bond yields, there has not yet been a significant impact on the stock market or the real economy, with the Nasdaq 100 index still reaching a historic high this week. This round of volatility in the bond market is mainly driven by recent economic data coming in stronger than expected, as well as a more hawkish stance taken by Federal Reserve Chairman Waller. The market expects that the overnight rate in the U.S. will reach 4.75% in a year, whereas it was previously expected to drop to 3% before the outbreak of the Iran war. If the yield on 10-year U.S. Treasury bonds remains around 5%, the higher risk-free return will enhance the attractiveness of bonds compared to stocks and will benefit long-term fund management, such as pensions. However, if yields continue to rise rapidly, it may exacerbate fiscal pressures and impact non-bank financial institutions and highly leveraged companies.