Concerns about inflation and uncertainty in the financial policies of the USA and Europe have intensified, leading to a massive sell-off in the Global bond market recently, with yields rising rapidly.

On Wednesday,$U.S. 10-Year Treasury Notes Yield (US10Y.BD)$ it rose to 4.73%, approaching the 5% peak set in October 2023, before falling back.$U.S. 20-Year Treasury Bonds Yield (US20Y.BD)$ The 30-Year U.S. Treasury Bonds Yield has already broken through 5%, reaching 4.975%.

$UK 10-Year Treasury Notes Yield (GB10Y.BD)$ also climbed to 4.912%, a new high since 2008. Even the Japan 10-Year Treasury Notes Yield $Japan 10-Year Treasury Notes Yield (JP10Y.BD)$ Also broke through 1%, reaching the highest level in over a decade.

Anxiety over inflation has led traders to lower expectations for interest rate cuts by the Federal Reserve and the Bank of England this year. Meanwhile, the market is weighing the potential impact of tariffs that President Trump may implement on prices, causing Global bond yields to rise.

After the 20-Year Treasury Notes Yield first broke through 5%, the 10-Year Yield is also approaching.

The USA economy remains resilient, with persistent inflation threats leading to the possibility of high interest rates, thus putting pressure on the Bonds market.

The minutes from the Federal Reserve's December meeting indicate that officials are inclined to slow the pace of interest rate cuts. Current Futures market pricing shows that traders expect only a cumulative reduction of 36 basis points this year.

Since the Federal Reserve began cutting interest rates last September, US Treasury yield has significantly risen, with the 10-year yield increasing by over one percentage point. Despite a retreat in Wednesday's increase, the benchmark yield remains at its highest level since April of last year.

Additionally, Trump's tariffs and tax cut promises have increased uncertainty in global trade, raising concerns about the USA's ability to continue servicing its ever-expanding debt without increasing debt costs.

James Athey, portfolio manager at Marlborough Investment Management, stated: "Due to investors struggling to cope with ongoing inflation, strong growth, and the high uncertainty surrounding the agenda of soon-to-be President Trump, the USA market is being significantly impacted.

Institutions, including Amundi SA, Citi Wealth, and ING, have warned that yields may continue to rise. Options Trading traders view 5% as the next critical threshold for the 10-year US Treasury.

Lilian Chovin, head of asset allocation at Coutts, stated, "It is certainly possible for yields to reach 5%... Given the enormous fiscal deficit, risk premiums and term premiums are emerging as well."

The United Kingdom faces a "triple whammy" of stocks, bonds, and currencies.

In the United Kingdom, the "triple whammy of stocks, bonds, and currencies" has reminded the market of the "tax cut panic" of 2022.

At that time, then-Prime Minister Liz Truss implemented a series of unconventional economic policies, proposing substantial tax cuts and increased government borrowing amidst high inflation, which led to a sharp decline in UK bonds and the price of the British Pound.

On Wednesday, the UK benchmark 10-Year Treasury Notes Yield briefly surged by 14 basis points to 4.82%, the highest level since August 2008. The British Pound fell against all major currencies, dropping 1.3% to $1.2321 against the US dollar, the lowest level since April. The UK stock market declined, with the FTSE 250 mid-cap index falling by 1.9% at one point.

The inflation outlook has prompted traders to lower expectations for a rate cut by the Bank of England this year. Currently, the MMF market is pricing in one rate cut from the Bank of England this year, with an 80% probability of a second cut, whereas before Wednesday, the market fully priced in two cuts, with a 20% probability for a third cut.

The UK government is also under pressure. Chancellor Rachel Reeves has been hoping to shape the Labour Party into one with fiscal discipline to attract international investment and promote economic growth. However, this mission has encountered obstacles, as its employment policies and increased National Insurance contributions are seen as likely to raise inflation.

The sudden rise in UK Treasury Notes Yield threatens Reeves' slim margin of £9.9 billion ($12.2 billion) remaining after announcing her first budget in October. If debt costs remain at current levels, she may breach her key fiscal rule of not borrowing for day-to-day spending by the next forecast from the Office for Budget Responsibility on March 26.

Chris Beauchamp, chief market analyst at IG Group, stated: "The increase in yields is a heavy blow, as it seems that the government sector cannot secure new funds to drive economic growth and may have to further cut spending."

Editor/Danial