Fiscal problems are global, but in Europe the ECB is expected to hike once more in September and then go on hold; that should keep European bonds more stable relative to the ongoing volatility and upward yield pressure in US rates.
Equity market strength, visible in small caps and S&P 500 Equal Weight, shows markets are pricing growth strong enough to outweigh high interest rates; stock indices continue rising despite high yields.
The 30-year Treasury yield is de-anchoring and will move higher, potentially reaching 5.25%. The bond market is front-running a hawkish Fed that needs to remove the easing bias and hike rates. The buyer base for Treasuries has shifted from yield-sensitive central banks to more macro-sensitive financial sectors, increasing volatility. Higher long-end yields are also needed as a hedge to slow the equity market momentum, similar to 2023.