Global bond yields surge as Brooks sees a long sell-off

Global benchmark bond yields are rising, with few countries spared. Japan’s 10-year government bond yield reached 3% for the first time since 1996 on Tuesday, the U.K.’s 10-year gilts climbed to 5.27%, the highest since 2008, and 10-year U.S. Treasuries briefly touched 4.8%. Robin Brooks, the former chief FX strategist at Goldman Sachs, said the move is part of a broader trend rather than something new.

He said the sell-off has been unfolding in fits and starts since 2022 and has reached nearly every advanced economy, with the exception of low-debt safe havens such as Switzerland and Sweden. Renewed U.S.-Israeli military action against Iran pushed Brent crude above $94 a barrel, reviving inflation concerns ahead of the heating season. Tai Hui, APAC chief market strategist at J.P. Morgan Asset Management, said a decline in inventory and seasonal fuel demand going into winter in the northern hemisphere means the direct impact on headline inflation around the world is to the upside.

Hong Kong, said, according to Reuters. Hawkish central bank guidance has added to the pressure. Fed Chair Kevin Warsh said at Jackson Hole that the central bank would have “work to do” if price pressures persist, and the ECB is expected to hike next week. Andrew Lilley, chief rates strategist at Barrenjoey, said, “I think the Fed hikes in September, and I think it’s the beginning of the three-rate hike cycle at minimum.” State Street senior fixed income strategist Masahiko Loo said investors are demanding more compensation for duration as sovereign issuance and corporate funding needs compete for the same pool of capital.

Loo said the uncertainty partly stems from Japan, which anchored global fixed income for decades. He said the issue is not large-scale repatriation, but Japan gradually ceasing to be the marginal buyer of foreign bonds, adding that the sell-off feels more like a buyers’ strike than a sellers’ panic. The Five-Year Slow Burn Brooks has been tracking the bond move in three In 2022-2023, rate hikes lifted entire curves. By 2024, the 2-year yield had started falling in most places, while longer-dated yields kept climbing as term premia widened.

Brooks said front-end hawkishness is now running into post-COVID balance sheets that have gotten unmoored on a global level. He added that inflation break-evens are fast asleep everywhere, suggesting the move is being driven by real yields, even as debt burdens point toward eventual monetization. He described European Central Bank intervention, Bank of Japan purchases and Treasury buybacks as artificial yield caps, with the shadow yield still above observed levels. Brooks said this sell-off has many years to go, but warned that shorting government bonds is not a no-brainer because governments will keep intervening to avoid a cataclysm.

He said strain is instead showing up in currencies, citing the crazy fall in the Yen over the past two years. His playbook is to short the dollar, go long the Swedish krona alongside Swiss assets, and add precious metals as the debasement trade. Trump has awakened the bond vigilantes with tariffs and the Iran war as the 10-year Treasury yield surges to a 19-month high.