Global bond yields surge, Kotak warns of market turbulence

Veteran banker Uday Kotak, founder and non-executive director of Kotak Mahindra Bank, cautioned markets to be ready for a "roller coaster ride" in interest rates as benchmark sovereign debt yields advance across major global economies.

"Japan's 10 year bond crosses 3% and US 4.8%," Kotak stated on X, adding: "As their government debt and deficits go up, central banks may have no option but to expand balance sheets (print money). If so, inflation goes up, short end rates go up. Be ready for a roller coaster ride in interest rate markets!"

At the time of reporting, the United States 10-year yield stood at 4.81 per cent, marking an increase of 0.01 or 0.17 per cent. Japan's 10-year bond yield traded at 3.02 per cent, reflecting a gain of 0.02 or 0.71 per cent.

Record moves in Japan, US long-end pressure

Japan's 10-year government bond yield touched 3 per cent on Tuesday for the first time this century, rising as much as six basis points to its highest level since 1996. The yield was around half that level a year ago, highlighting the speed of the shift in Japan's bond market, as reported by Moneycontrol.

The move comes after the Bank of Japan ended the world's last negative interest-rate policy in 2024. Japanese government bonds are increasingly being priced by investors based on inflation, economic growth and relative risk and returns, rather than being driven primarily by central bank policy.

In the US, the pressure has been particularly pronounced at the longer end of the Treasury curve. The yield on the 30-year US Treasury reached 5.34 per cent in mid-August, its highest level since 2007, and touched 5.29 per cent on Tuesday. The 30-year Treasury yield has remained above 5 per cent for 55 days since the start of January, the highest number of days in any year since 2006, according to Bloomberg data.

Global bond markets are also facing pressure from persistent inflation concerns, higher oil prices and fiscal challenges. Germany's 30-year yield touched its highest level since 2011 on Tuesday, while the equivalent UK yield rose to its highest level since 1998. Australian long-term yields also hit a record high in data going back to 2016, while a Bloomberg index of global sovereign bonds climbed to its highest level in almost two decades.

Kotak links yields to fiscal imbalances, inflation

Kotak linked these market movements to widening sovereign fiscal imbalances and the authorities facing monetary policy pressures. "As their government debt and deficits go up, central banks may have no option but to expand balance sheets (print money)," Kotak explained in his post. "If so, inflation goes up, short end rates go up," he added, detailing the chain of economic reactions.

For the Indian market, rising US and Japan yields can mean pulling away of foreign capital from the country toward safer higher-return bonds, pressuring FII flows into equities and debt.

Indian yields inch up, other markets mixed

At the time of reporting, the India 10-year benchmark bond yield traded at 6.96 per cent, recording a change of 0.01 or 0.07 per cent. At the shorter end, the India 5-year yield stood at 6.59 per cent, moving up by 0.01 or 0.09 per cent. The long-term India 30-year bond yield held at 7.56 per cent, logging a gain of 0.03 per cent.

The broader bond data outlined movements across other major global sovereign debt securities. The United Kingdom 10-year bond yield stood at 5.22 per cent, recording a contraction of 0.04 or 0.85 per cent.

In Europe, Germany's 10-year yield sat at 3.34 per cent, rising by 0.01 or 0.45 per cent, while France's 10-year yield registered at 4.21 per cent, gaining 0.03 or 0.66 per cent. China's 10-year yield traded at 1.69 per cent, showing a change of 0.12 per cent.