[Edaily Reporter KIM JUNG YOU ] Global bond markets are once again in turmoil. This is because U.S. Treasury yields are surging once more due to persistent inflation and hawkish (tightening) remarks from the U.S. Federal Reserve (Fed). In particular, even as the stock market and investor sentiment remain unsettled by the NVIDIA crisis, the sell-off in Treasuries continues, dashing expectations that U.S. Treasuries would regain their role as a safe-haven asset.

According to a Bloomberg report on the 13th, U.S. Treasuries have taken a significant hit recently. Yields have risen sharply not only on short-term bonds—which are sensitive to policy rates—but also on long-term bonds. On the 10th and 12th, the increase in the 2-year yield was the largest since March 2023, while the rise in the 10-year yield hit its highest level since April of last year. In Asian markets that day, the 2-year yield stood at 4.86% per annum, and the 10-year yield at 5.12% per annum.

This marks a sharp reversal in just one week. Last week, as the Democrats secured a landslide victory in the U.S. midterm elections and concerns over an artificial intelligence (AI) bubble grew, investors flocked to U.S. Treasuries as a safe-haven asset. However, the trend reversed after Federal Reserve Governor Christopher Waller expressed support for interest rate hikes and stated that he would even support a 0.5 percentage point increase if inflation persists. A higher-than-expected Consumer Price Index (CPI) reading and remarks by Lori Logan, president of the Federal Reserve Bank of Dallas, also contributed to this shift.

Market tension is higher than ever. Kelly Wood, a fund manager at Schroders who holds a short position in Treasury bonds, told Bloomberg, “The environment right now is more challenging than it was during the COVID-19 pandemic or the global financial crisis.” She added, “Back then, there were large, clearly directed movements, but now we’re seeing a succession of supply shocks and extreme interest rate volatility,” and warned, “We must remain vigilant about rising interest rates through the end of the year.” This implies that the current situation—marked by unpredictable fluctuations—is more challenging than a crisis where interest rates move in a single direction.

The ripple effects of rising U.S. Treasury yields—widely regarded as the benchmark for global borrowing costs—are spreading worldwide. Bloomberg’s U.S. Treasury yield index has reversed its recovery, during which it had narrowed losses to 1% this year, and is falling again. Japanese and Australian government bond yields are also approaching their highest levels in years. French government bond yields, which had surged due to fiscal concerns and political instability, briefly stabilized earlier this month but have since begun to rise again.

Many experts are predicting further increases. Tracy Chen, a portfolio manager at Brandywine Global Asset Management, said, “The sell-off in developed-market government bonds is far from over,” adding, “The next target for the 10-year yield is 5.5%, after which it will likely pause to catch its breath.” Alice Andrés, a strategist at Bloomberg “MarketLive,” also analyzed, “There is room for the sell-off in 2-year government bonds to intensify on the 13th, when the next inflation data is released.”

Conversely, some view the current situation as a buying opportunity. George Boubras, Head of Research, Investment, and Advisory at hedge fund K2 Asset Management, assessed that “the 10-year yield is attractive around 5.3%.” Bets on interest rate hikes around the world are also increasing. According to Bloomberg data, the average swap market forecast for policy rate changes over the next year across the G8 nations has exceeded 0.5 percentage points. This represents a significant increase from 0.33 percentage points on the 6th.

There are also forecasts that trends will diverge by country. A Wood manager noted, “In the U.S., where inflation is accelerating and growth rates are outpacing other countries, interest rates could exceed 5%,” but added, “On the other hand, Australia and Europe are expected to cut rates to prevent a recession next year, so we are currently buying government bonds from those countries. Next year will be a ‘year of divergence,’ with each country’s economy at a different stage of the business cycle.”