Rising oil prices, persistent inflation risks, growing government debt and an enormous supply of new sovereign bonds continue to put selling pressure on bond markets.

The move has been particularly pronounced in the US. The yield on 30-year US Treasuries rose for a sixth consecutive session on Tuesday, temporarily reaching 5.62 percent – its highest level since June 2002. Ten-year Treasury yields climbed as high as 5.29 percent, their highest level since 2007.

On Wednesday, the yield on the ten-year US Treasury remained close to these highs at around 5.23 percent. In September alone, it has risen by almost 50 basis points.

“The path of least resistance seems to be for the term premium to continue to rise,” said Arun Sai, multi-asset strategist at Pictet Asset Management, referring to the additional yield investors demand for holding longer-dated bonds. “Investors are in no hurry to add duration,” he added.

Kristina Hooper, Chief Market Strategist at Man Group, said that rising long-term bond yields reflected “growing concerns about fiscal sustainability” as well as higher inflation fuelled by the energy crisis triggered by the US-Iran war.

Meanwhile, ten-year government bond yields in Germany and France reached their highest levels in 17 and 18 years, respectively. In Japan, the ten-year government bond yield was on track to rise by 42 basis points over the quarter.

Oil and Debt Drive Yields Higher

The global move is being driven by more than expectations surrounding the next decisions by central banks. Investors are increasingly demanding a higher premium for lending to governments over the long term.

In the US, concerns about public finances are adding to inflation risks. US government debt has now surpassed the 40 trillion dollar mark. At the same time, high energy prices have dashed hopes of lower policy rates. Brent crude traded above 100 dollar per barrel for much of September.

Switzerland: Yields Rise Sharply in September

Higher global interest rates have also reached the Swiss bond market – albeit at an entirely different level. The yield on ten-year Swiss Confederation bonds stood at around 0.4 percent at the end of August. During September, it climbed to just under 0.65 percent at one point, its highest level in around 19 months. On Tuesday, it fell back to around 0.6 percent.

This means the yield has risen by around 20 basis points within a month. A year ago, it was even around 40 basis points lower.

While ten-year US Treasuries currently yield around 5.2 to 5.3 percent and German Bunds around 3.6 percent, the ten-year Swiss yield remains at just around 0.6 percent.

A New Era for Bond Investors?

Charu Chanana, Chief Investment Strategist at Saxo, sees signs that yields could remain permanently higher. The hurdle for a return to the extremely low interest rates seen in the years following the global financial crisis has risen significantly.

Other investors are already seeing opportunities to re-enter the market following the sell-off. With the ten-year US Treasury yield above 5 percent, institutional investors could begin shifting capital back into fixed-income assets.