[Tightening Era] Global Government Bond Yields Surge During Super Week

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed)
[Photo by AP]

[Asia Economy New York=Special Correspondent Joselgina] As the so-called 'Super Week,' during which monetary policies of at least 13 countries including the U.S. Federal Reserve (Fed) are decided, takes place, government bond yields of major countries are soaring simultaneously. Following Sweden's decision to raise its benchmark interest rate by a whopping 1 percentage point, most central banks are expected to implement at least a big step (a 0.5 percentage point increase) this week, causing a rapid spread of tightening fears throughout the market.

On the 20th (local time) in the New York bond market, the U.S. benchmark 10-year Treasury yield rose 7 basis points (1bp=0.01 percentage point) from the previous session to 3.56%. The 2-year yield, which is sensitive to monetary policy, also climbed to 3.97%, approaching the 4% level. This reflects concerns that the Fed's high-intensity tightening to reduce inflation may last longer than expected.

In the Eurozone (19 countries using the euro), government bond yields also showed a marked upward trend. On the same day, Germany's 10-year yield surged 12 basis points to 1.93%, the highest level since January 2014, amid concerns over high inflation in the region. France's 10-year yield briefly surpassed 2.5% during the session. The UK's 10-year yield also reached 3.294%.

South Korea's government bonds are also fluctuating. On the 21st in the Seoul bond market, the 3-year government bond yield rose to 3.866% as of 9:54 a.m., up 4.3 basis points from the previous day's closing price of 3.823%, which was the highest in 11 years and 1 month.

The simultaneous sharp rise in government bond yields across major countries is largely a consequence of an 'unprecedented hawkish period' where central banks worldwide are raising rates simultaneously this week. Following Sweden's 1.0 percentage point rate hike, the Fed, which began its two-day Federal Open Market Committee (FOMC) regular meeting on the same day, is also expected to implement a third consecutive giant step (a 0.75 percentage point increase). Some speculate the possibility of a 1 percentage point hike as well. Additionally, the Bank of England (BOE), Swiss National Bank, and Norges Bank are also expected to raise rates by at least 0.5 percentage points.

Bloomberg News reported, "This week, a total of 500 basis points of benchmark rate hikes will be implemented worldwide." John Silvia, founder of Dynamic Economics Strategy, pointed out, "Many central banks are tightening simultaneously in a difficult environment," adding, "This increases the uncertainty of the global economy and policy paths."

As simultaneous tightening accelerates, concerns over economic recession have intensified. The yield spread between the U.S. 2-year and 10-year Treasuries has widened to 41 basis points. The inversion of short-term yields exceeding long-term yields is generally considered a precursor to recession. Furthermore, the Fed's tightening is fueling a super-strong dollar, prompting countries to defend their currency values in what is called a 'reverse currency war.' In this case, emerging markets with limited tightening capacity are inevitably facing greater shocks.

This content was produced with the assistance of AI translation services.