Global bond yields have surged to their highest levels since 2009 ahead of a key Federal Reserve policy meeting, signaling market concerns that the rate-cutting cycle from the U.S. to Australia may be nearing its end. An index tracking long-term government bond yields has rebounded to a 16-year peak, with money market bets reinforcing this sentiment.

Traders now price in near-zero chances of further rate cuts by the European Central Bank, while expectations solidify that the Bank of Japan will hike rates this month and the Reserve Bank of Australia will deliver two 25-basis-point increases next year. Even in the U.S., where the Fed is widely expected to cut rates this week, market outlooks are rapidly evolving. The 30-year Treasury yield has climbed to multi-month highs as investors reassess monetary policy, inflation, and fiscal discipline prospects.

Robert Tipp, Chief Investment Strategist and Global Head of Bonds at PGIM Fixed Income, noted, "A 'disappointment trade' is playing out across developed markets as investors come to terms with central banks potentially ending their easing cycles." He added that U.S. long-term rates face a challenging environment as the Fed’s dovish cycle approaches its conclusion.

The market shift reflects growing consensus that last year’s rate cuts—which fueled record equity highs and bond rallies—are winding down. Bond investors are re-evaluating global growth prospects, inflation risks from trade wars, and the impact of soaring government debt from Japan to the UK.

Yields in Japan, the UK, and Germany have also hit multi-year highs, with long-dated bonds under the most pressure as investors demand higher compensation for riskier securities.

Hours before the Fed meeting, U.S. Treasuries took center stage. While policymakers are expected to deliver a third consecutive rate cut, the 10-year yield hovers near September peaks—an anomaly highlighting concerns over U.S. debt burdens and uncertainty around Chair Powell’s successor post-May. Kevin Hassett, head of the White House National Economic Council, has emerged as a top contender, widely seen as aligned with Trump’s low-rate agenda.

Gordon Shannon, Portfolio Manager at TwentyFour Asset Management, observed, "Recent 'Hassett trades'—reflected in dollar weakness, steepening yield curves, and risk-asset rebounds—show cautious optimism, but markets doubt the extent of policy easing. Even a Hassett-led Fed could be constrained by persistent inflation."

Bond markets now signal prolonged borrowing cost pressures. German lawmakers plan to approve a record €52 billion defense order next week, while investors digest Japan’s post-pandemic stimulus. In Sydney, RBA Governor Michele Bullock has all but ruled out rate cuts, driving Australian yields to the highest among developed markets.

Amy Xie Patrick, Head of Income Strategies at Pendal Group, noted, "This yield surge stems from expectations of stronger growth as global fiscal policies turn more expansionary next year."