The intensifying bond selloff has pushed the average yield on global government debt to within a whisker of 4%, a level not witnessed since 2007. The Bloomberg Global Aggregate Treasury Index saw an 8 basis point increase on Wednesday, closing at 3.99%. US Treasuries are spearheading the decline, with robust economic data and a 5-year note auction driving much of the yield curve to multi-year highs. By one measure, that 5-year auction was the second-poorest result since records began in 2018.

"This move is likely far from over," wrote Padhraic Garvey, head of Americas research at ING Groep NV, in a report. Even with yields already elevated, persistent conflict involving Iran, stubbornly high inflation, and mounting fiscal concerns are reinforcing investor conviction that interest rates will stay higher for longer, keeping sentiment toward government bonds cautious. The pain extends well beyond fixed income, as rising yields push up borrowing costs for everyone from corporations to homeowners, while simultaneously dimming expectations for future corporate earnings, thereby pressuring equity markets.

"Inflation in many places remains elevated and sticky, labor markets are tight for various reasons, and the economy is still growing nicely despite higher fuel and other prices," said Amy Xie Patrick, a money manager at Pendal Group. "Given all that, bonds are actually behaving quite rationally when it comes to economic fundamentals." On Thursday, the pressure spread to Asia. Australia's policy-sensitive 3-year government bond yield surged 13 basis points to 5.07%, its highest level since May 2011. New Zealand's 2-year yield climbed as much as 17 basis points, approaching 4%. Japan's 10-year yield also rose as trading resumed following a three-day holiday.

Strategists at JPMorgan and KKR contend that US yields have further room to climb, given the ongoing risks of energy-driven inflation, substantial government borrowing, and the potential for additional monetary policy tightening by central banks. "Most fixed income investors want higher yields, but they also want them to be stable—they fear getting hit by a sudden shock," commented Hans Mikkelsen, a strategist at TD Securities.