Bond markets are unsettled, and so, in turn, is America’s government. On 19 August, the Treasury said that from next month it would increase its own purchases of longer-dated debt. This reflects “increasing administration unease” about yields, analysts at Deutsche Bank believe.
Officials have good reason to worry about rising borrowing costs. The yield on ten-year Treasuries reached its highest since January 2025 on 18 August. Scarier still, 30-year yields briefly passed 5.3%, their highest since 2007. And America is not alone. Bondholders are demanding more from governments across much of the rich world. Yields on British, French and German long-dated bonds have all reached levels not seen in more than a decade. Japanese 30-year yields, long the lowest in big economies, are close to an all-time high. The rout eased somewhat on 19 August. But yields are unlikely to fall much soon. What is amiss?
For one thing, unlike equity investors, bond traders appear to be reading the news. The Strait of Hormuz remains largely shut and looks likely to stay that way for a while. Fuel prices in America—particularly for diesel, on which much of commercial haulage relies—have soared in turn. The fund managers surveyed monthly by Bank of America, most of whom are heavily invested in stocks, are sanguine. On average, they expect Brent crude, the global oil benchmark, to trade at $76 a barrel by the end of the year, only slightly up from before the start of the war. Bond markets seem less sure.
Accordingly, they are pricing in continued inflation. On 19 August, Britain reported consumer-price inflation of 2.9% for the year to July, up from 2.6% in June, as higher energy prices bit. In America, core inflation (which excludes food and energy) eased last month. But bond traders seem to have pared back bets on future rate rises after recent remarks by the Federal Reserve’s new chairman, Kevin Warsh.
