When the safest investments on Earth all sell off at once, it usually means something. This week they did.
Long-dated government bonds in the US, UK, and Japan are getting dumped together. That kind of synchronized move across three continents almost never happens.
Yield is just the interest rate a bond pays. When yields rise, bond prices fall, and the math behind every other asset has to be reworked.
The US 10-year Treasury yield broke through 4.59%. That is the highest in a year.
The 30-year Treasury touched 5.12%, which is its highest level since 2007.
In London, the 30-year UK gilt yield smashed past 5.85% to a high not seen since 1998. The 10-year is sitting at 5.11%, knocking on the door of its 2008 peak.
Tokyo printed the most striking move. Japan's 30-year bond yield hit 4.035%, a record since the tenor was created in 1999.
The 20-year hit a 1996 high. The 40-year touched a multi-decade peak.
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US inflation came in hot. April CPI rose to 3.8%, the highest since May 2023, and PPI jumped to 6%, the biggest annual gain since 2022.
Traders responded by pricing in roughly a 40% chance the Fed hikes rates again this year. They are no longer betting on cuts.
New Fed Chair Kevin Warsh is being read as more hawkish than the last one. Investors think rates stay higher for longer under his watch.
Japan has its own story. Corporate input prices rose at the fastest pace in nearly three years.
Swap markets price roughly a 75% chance the Bank of Japan resumes rate hikes at its June meeting. That would be its first hike in months.
The UK has politics piled on top of inflation. The ruling party took a beating in local elections, and foreign investors are pulling back over what the next government does with the budget.
Underneath all of it, Brent crude sits above $100 a barrel. Higher oil means higher inflation expectations, which means higher yields.
Real yields, which are what you earn after inflation, just hit 2.05% on the US 10-year TIPS. That is the steepest jump in years.
Higher real yields tend to crush high-growth stocks. Global equity indexes have already dropped 1% to 2% in response.
Higher rates also raise borrowing costs for companies and households, which slows big purchases like homes and cars.
For bond holders, the math is brutal. Long bonds bought a year ago are deep in the red, since prices and yields move in opposite directions.
The next trigger to watch is the BoJ's June meeting and the next US CPI print. Either one could push yields another leg higher.
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