Global bond yields pulled back on Thursday, with US Treasury market sentiment turning calmer following the Federal Reserve’s rate hike and Chairman Kevin Warsh’s pledge to curb inflation, while traders positioned ahead of Friday’s Bank of Japan policy decision. The 10-year Treasury yield slipped 3 basis points to 4.99%, snapping an eight-session streak of gains. Yields on comparable Australian and Japanese government bonds declined by 3 basis points and less than 1 basis point, respectively.

This week, average global sovereign yields reached their highest level in 19 years, driven by escalating Middle East tensions that lifted oil prices and stoked inflation expectations. The Fed raised its benchmark rate by 0.25 percentage point on Wednesday, in line with consensus forecasts, with policymakers’ median projections signaling one more hike later this year.

“The Fed had no choice but to hike, or else it faced an even bigger bond market selloff,” said Byron Anderson, head of fixed income at Laffer Tengler Investments. “From here, the market narrative conflicts with the Fed, which means volatility will intensify further. A single rate cut won’t pacify the bond market for long, nor will it resolve the inflation problem.”

The central bank’s preferred inflation gauge stood at 3.7% in July, near its highest since 2023 and well above the Fed’s 2% long-term target. Warsh noted that summer inflation data does not indicate a meaningful improvement in underlying price trends.

“For the bond market, this is likely to have long-term consequences rather than a passing storm,” said Hebe Chen, market analyst at Vantage Global Prime. “The short-term market now has to factor in the possibility of further Fed tightening, while the long-term market is already contending with inflation, heavy debt issuance, and fiscal concerns—meaning that even if initial volatility stabilizes, the gravitational pull of higher yields may persist.”

While digesting the Fed’s decision, investors also turned their attention to the Bank of Japan, which is holding its policy meeting. All observers surveyed by Bloomberg expect the central bank to raise its policy rate from 1% to 1.25%. According to meeting records, US Treasury Secretary Scott Bessent expressed strong support for Japan’s decisive market actions and currency measures aimed at addressing the yen’s severe undervaluation.