What Could Stop the Bond Market Selloff?: 3-Minutes MLIV

Summary

Paul Dobson discusses the global bond selloff, with U.S. 10-year, Japanese, and Australian yields hitting multi-year or multidecade highs. He explains that inflation, supply/demand, fiscal concerns, and a higher neutral rate are driving yields higher, and says central bank credibility, fiscal plans, or a 6% 30-year U.S. Treasury yield could stop the selloff. He also argues equities can cope with gradual yield increases, while higher borrowing costs may check but not derail AI buildout funding.

• Global bond selloff is focused on the longer end, with Japan reaching 3%, Australia at the highest since 2011, and U.S. 10-year yields rising.
• Drivers include inflation risks, supply/demand imbalances, corporate issuance, government profligacy, and acceptance of a higher neutral rate.
• Central banks may need higher rates to restore credibility and faith in longer-term yields.
• Government fiscal credibility and debt management plans are seen as needed to stop the selloff.
• A 6% yield on the 30-year U.S. Treasury could attract ample demand.
• Equities are seen as likely to cope with slow and steady rising yields, with a rapid rise as the main risk.
• Higher borrowing costs may slow but not necessarily derail the AI buildout.