Contributing to the selloff in the asset class, Japan — which has the developed world’s lowest interest rates thanks to its ultra-easy monetary policy — saw weak investor interest when selling 20-year notes Thursday.

The yield on a Bloomberg index for total returns on global sovereign debt rose to 3.3% Wednesday, the highest since August 2008. Sovereign bonds worldwide have handed investors a loss of 1.2% this year, making the asset class the worst performer across Bloomberg’s major debt indexes. 

It’s a reversal from the start of the year, when optimism that rate hikes were close to ending sent global bonds soaring, with the Bloomberg Global Aggregate benchmark jumping more than 3% in January for its best opening month to a year on record. The gauge slid Wednesday to be down 0.1% for the year.

Eoin Treacy's view

Treasury yields have been up for six consecutive days so a pause in the region of the October 2022 peak is quite likely. That would help to unwind the short-term oversold condition.
However, the medium-term challenge is GDP Now is at 5.75%, unemployment is still very low and inflationary pressures are still well above target. There is not much to stop the Fed from continuing to raise rates.

My global aggregate of financial conditions indicator is approaching levels where assistance from central banks has been required in the past. Amid increasingly weak performance from the mega-cap sector, the toll of higher rates is beginning to be felt on Wall Street.
The yield curve spread is now trending higher as the long-end rises faster than the short end. That is not generally how the de-inversion process occurs but it signals trouble ahead and particularly so when it crosses up into positive territory.


Both gold and bitcoin are responding negatively to tighter monetary conditions. Gold held the move below $1900 today and bitcoin broke lower in a dynamic manner to today and is approaching the region of the 200-day MA. With real yields breaking higher, the pressure on non-income producing assets continues to rise. When the trend of rising rates turns, that will be a bullish catalyst for both assets.