Global Bond Yields Increase on Inflation Fears

Yields in the global bond market spiked on Tuesday as investors braced for the inflationary impacts of the war in Ukraine, with central banks expected to begin aggressive monetary tightening moves.

The yield on 10-year Australian notes jumped eight basis points to 2.53%. This came after 10-year US Treasuries and German bonds surged more than 10 basis points overnight and the rate on UK gilts climbed to its highest level since 2018. 

Analysts are convinced the US Fed will kick off a tightening cycle this week and also raise rates at all six subsequent meetings this year.

The Fed and the Bank of England are both expected to hike rates this week, while the European Central Bank has signaled an accelerated exit from monetary stimulus in response to consumer-price growth.

Analysts have fully priced in a 25-basis-point increase by the Fed this week and expect the central bank will hike borrowing costs throughout the year.

What does this mean for me? 

Market watchers believe that government bonds are losing their diversification benefits, and investors meanwhile are demanding greater compensation for holding them.

With inflationary pressures building, and the prospect of monetary tightening drawing closer, the allure of holding government debt is fading.

As a bonds trader, you need to pay attention to the events causing moves in the market. What is normally a slow-moving asset class is unsurprisingly getting caught up in the cycle of the Russia-Ukraine war and persistent high inflation.