Global benchmark bond yields are surging, and seemingly no country is spared. Japan's 10-year government bond yield hit 3% for the first time since 1996 on Tuesday, the U.K.'s 10-year gilts hit 5.27% – the highest since 2008, and 10-year U.S. Treasuries briefly touched 4.8%.
Headlines connect the move to the Middle East escalation and fiscal friction, but for Robin Brooks, former chief FX strategist at Goldman Sachs, the escalation is just part of a multi-year trend.
"That's creating the mistaken impression that what's going on is new," Brooks wrote. "Neither is true. This sell-off has been going on in fits and starts since 2022 and — with the exception of low-debt safe havens like Switzerland or Sweden — it's engulfed pretty much every advanced economy."
Oil, Sticky Inflation and Heavy Supply
Renewed U.S.-Israeli military action against Iran pushed Brent crude above $94 a barrel, reviving inflation fears ahead of the heating season.
"A decline in inventory and seasonal demand for fuel going into winter in the northern hemisphere means the direct impact on headline inflation around the world is to the upside," Tai Hui, APAC Chief Market Strategist at J.P. Morgan Asset Management Hong Kong, said, according to Reuters.
Hawkish central bank guidance has compounded the pressure. Fed Chair Kevin Warsh warned at Jackson Hole that the central bank would have "work to do" if price pressures persist, and the ECB is expected to hike next week.
"I think the Fed hikes in September, and I think it's the beginning of the three-rate hike cycle at minimum," said Andrew Lilley, Chief Rates Strategist at Barrenjoey.
Meanwhile, tech hyperscalers are flooding markets with debt to fund AI buildouts.
"Investors are increasingly demanding greater compensation to own duration as sovereign issuance and corporate funding needs compete for the same pool of capital," State Street's Senior Fixed Income Strategist Masahiko Loo noted.
A notable part of the global uncertainty stems from Japan, which anchored global fixed income for decades. Rather than panicked repatriation, Loo sees a slower structural shift.
"The story is not large-scale repatriation, but Japan gradually ceasing to be the marginal buyer of foreign bonds... This is why the sell-off feels more like a buyers' strike than a sellers' panic," he explained.
The Five-Year Slow Burn
Brooks has been tracking the bond move in three phases. In 2022–2023, rate hikes lifted entire curves. In 2024, "2-year yield started falling in most places, but long-term yields kept rising" as term premia expanded. Now, front-end hawkishness is colliding with post-COVID balance sheets that have "gotten unmoored on a global level."
Curiously, "inflation break-evens are fast asleep everywhere," meaning the move is driven by real yields — even as debt piles point toward eventual monetization. Interventions from the European Central Bank, Bank of Japan's purchases and Treasury buybacks amount to "artificial yield caps," leaving the "shadow yield" well above observed levels.
"This sell-off therefore has many years to go," Brooks wrote, while cautioning against thinking that it's an easy trade.
"Shorting government bonds isn't a no-brainer," he said, explaining that the governments will keep intervening to prevent a cataclysm. Instead, strain vents through currencies — "the crazy fall in the Yen over the past two years testifies to that."
His playbook is to short the dollar, go long the Swedish krona alongside Swiss assets, and accumulate precious metals as the debasement trade.
