Global government bonds are strengthening as investors prepare for a week shaped by monetary policy signals, inflation data, geopolitical developments, and continued attention to elevated long-term yields.
In the United States, Treasury yields declined across most of the curve, with the 10-year yield falling to 4.71% and the 30-year to 5.24%. The 2-year yield remained broadly unchanged at 4.24%, resulting in a flatter yield curve.
The move follows a turbulent period in which the 30-year Treasury yield reached a near two-decade high. Treasury Secretary Bessent subsequently announced an increase in long-end government bond buybacks, described as a “Treasury Twist,” which markets have interpreted as a marginal easing of financial conditions.
Attention now turns to several important events, including Bessent’s Iran sanctions briefing, Fed Chair Warsh’s Jackson Hole speech, and Friday’s July PCE inflation report.
Credit markets remain relatively stable, although some signs of pressure have emerged. US investment-grade and high-yield spreads widened modestly over the past week, while CCC-rated spreads reached a 16-month high and yields climbed to a two-year high. Demand for inflation protection has also increased, with trading volumes in Treasury Inflation-Protected Securities rising 44% last week.
European sovereign markets remain broadly stable. Germany’s 10-year Bund yields 3.26%, while French and Italian 10-year yields stand at 4.13% and 4.08% respectively. The spread between French and German government debt remains an area of focus as investors price additional risk around French budget negotiations and the challenges posed by a divided parliament.
European credit markets have remained comparatively resilient, with spreads marginally tighter. Primary issuance has also accelerated, with the strongest issuer activity in seven weeks and several major companies accessing the euro-denominated bond market.
UK Gilts are strengthening alongside US Treasuries. The 10-year Gilt yields 5.06%, while the 30-year stands at 5.80%. Political and fiscal developments are increasingly attracting investor attention as the new government prepares for its first budget. Despite these uncertainties, long-term UK yields are being viewed as attractive by some institutional investors given the elevated term premium.
Asian government bonds are broadly participating in the rally. Australia’s 10-year yield declined to 5.02%, while China’s 10-year government bond yield fell to 1.68% as the People’s Bank of China increased liquidity injections into the banking system.
Japan remains the exception. The 10-year Japanese Government Bond yield edged higher to 2.89%, while upcoming 10-year and 30-year bond auctions represent an important risk for global fixed-income markets. Weak demand could indicate that investors require higher yields to absorb long-duration government debt, with potential implications extending beyond Japan to US Treasuries and other major sovereign markets.
Overall, fixed-income markets remain focused on the interaction between inflation, fiscal policy, government debt supply, and central bank expectations. With long-term yields still near multi-decade highs in several markets, this week’s policy signals and economic data could prove particularly important for the direction of global bond markets.
