Global bond yields are climbing, with 10-year U.S. Treasury yields reaching their highest levels since 2007. The Bloomberg Global Aggregate Treasuries Total Return index has hit its highest point since 2000.
A Man Group study challenges the conventional view that high inflation inherently harms U.S. Treasuries. The firm's research suggests that the pace of inflation acceleration inflicts more damage on bond performance than high inflation as a standalone factor.
Global bonds have lost 2.7 percent this year, contrasting with a 13 percent gain for equities. This divergence occurs as investors contend with persistent inflation, fiscal concerns and resilient economic expansion.
More than half of 173 respondents in a Markets Pulse survey predicted U.S. 30-year yields will reach six percent by year-end. Borrowing costs are also setting new highs from Japan to France.
The U.S. economy continues to perform robustly, and global growth holds steady. Manufacturing gauges indicate the strongest growth in years across major economies, contributing to inflationary pressures. This economic resilience increases the risk of further interest-rate hikes by central banks, including the U.S. Federal Reserve, which raised rates in September.
Torsten Slok of Apollo Global Management Inc. suggests rates risk staying "higher for longer." Gilles Moec, chief economist at AXA Group, said long-term yields have not necessarily reached a "self-stabilizing level yet."
Martin Harvey, a fixed-income portfolio manager at Wellington Management, noted the strength of economic activity. "Growth is still strong and if anything after the recent PMIs is getting stronger," Harvey said. "Bonds are not a good hedge for equities right now."
Oil price spikes are adding to inflationary pressures. Brent crude prices surged to $126.41 per barrel, elevating gas and diesel prices. Food prices are also rising, partly due to recent heatwaves.
Fiscal risks are growing due to persistent budget deficits. Federal borrowing to finance government spending increases bond supply, leading investors to demand higher yields.
PIMCO research highlights that inflation is particularly problematic for fixed-income investments where regular interest payments remain fixed until maturity. Man Group's analysis suggests that rapid inflationary shifts break the traditional diversification playbook, where stocks and bonds typically offset each other.
