Why Global Bond Yields Are Surging
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Bond yields around the world have been rising for most of this year and have recently surged. So are interest rates settling into a new higher normal, or is this a temporary dislocation? I'm Alison Nathan, and this is Goldman Sachs Exchanges. To understand why bond markets are under pressure, giving rise to higher bond yields, I'm sitting down with my colleague, George Cole, who leads European rate strategy for Goldman Sachs Research. George joins me today from London. George, welcome to the program.
Thanks very much.
So, George, it's easy to look at the headlines and think this is just a US story. We've obviously seen concern about inflation here in The US. There's concern about spending levels. But this bond sell off is really happening everywhere. Is that right?
Yeah. No. That's right. So as you said, I sit over here in London. I look primarily at the European bond markets in Germany, in The UK. But when we look at The US, when we look at markets like Japan, we would really think of these four as the major government bond markets, the major benchmarks for the global economy and global fixed income markets, and we're seeing all of these markets move higher in yield. We're at multi decade highs as we read about in the financial press. We're seeing yields pressing higher across all of these economies, and it doesn't look obvious that there's a single dri
Well well, that's my follow-up to you, George, because the question is what is driving this? And my intuition would be the rest of the world is just following The US lead. But you're saying that may not be the case. Every country might be dealing with their own issues?
Yeah. So as a rate strategist and as an economist, we'd be looking at yield curves and bond markets to try to think about and find clues what is driving the move. We could look which economy might be driving it. As I said, it's not that obvious that you can point to just one of those major bond markets as driving the sell off. You could look at things like the shape of the yield curve. Maybe it's the front end of interest rate curves that is moving that would be associated with expectations around policy rates that might be on the move, maybe reflecting cyclical conditions, better growth, high
And so what are then the fundamental drivers, or are there not? What do you attribute all of this movement to?
I'm glad you asked, are there fundamentals behind it? And this is one of the features of this sell off, I think, is a little underappreciated when you might read about it, is that actually the volatility of the moves have been relatively low. Now, of course, we're dealing with the revision right now of central bank expectations, and we're maybe moving toward an expectation that rates will be moving higher from central banks, that's now inducing a little bit of volatility in the market. But if we go back to, say, July and think about the move since then in yields higher, what has been really st
Right. But when I look at those list of factors, the most recent one, of course, has been the surge in energy prices. And so my question is why now when many of those factors have been sort of long in the market, long in coming? Is that your answer to energy, or it's still a question we're trying to answer?
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