Bond Yields Around the World Soar

The global index of government bonds touched its highest yield level since 2008 on Tuesday, as a rout in fixed-income markets pushed borrowing costs for governments to levels not seen in nearly two decades. Germany and UK bonds hit 15-year highs, Japan's 10-year government bond traded at its highest point since 1996, and the US 10-year Treasury yield hovered at levels rarely seen since the financial crisis. The sell-off came as renewed fighting between the US and Iran drove oil prices up 4.6%, adding to inflation fears that were already pressuring bonds.

What's Driving the Bond Rout

Markets reporter Jack Pitcher identified three main forces behind the global bond sell-off. First, inflation expectations remain elevated, and higher oil prices from Middle East tensions only add to that pressure. Second, there is growing concern about fiscal deficits in the US and other regions, and whether governments can get them under control. Third, uncertainty about the Federal Reserve's next move under Chairman Kevin Warsh is weighing on bonds. Pitcher said Warsh has signaled he will "take more of a stance of letting the bond market figure out what rates should be based on the data points coming in," which has reduced certainty about whether rates will move higher at the September Fed meeting. That uncertainty is getting priced into the risk premium.