By Jenni Reid
Bond markets were back in focus this week as rising yields — which reflect higher borrowing costs for governments — raised concerns over debt sustainability around the world.
Described by analysts at Deutsche Bank as a “slow-moving vicious circle,” higher government bond yields increase the cost for nations to service their debts, at a time when many major economies — from the U.S. to the U.K., France and Japan — are struggling to reduce their fiscal deficits. Questions about their ability to do this puts further upward pressure on long-term bond yields, as investors demand a higher risk premium, which worsens debt dynamics further.
Yields broadly eased across Thursday and Friday, pulling back from some of the eye-catching milestones reached earlier in the week, which included the Japanese 30-year at a record high, the U.K.’s 30-year at a 27-year high, and the U.S. 30-year peeking above 5% for the first time since July. Yields move inversely to bond prices.
“The volatility that we’ve seen over the last two weeks is something that we’ve probably gotten a bit used to in the bond market… cooler heads will prevail, and markets will function as they should,” Jonathan Mondillo, global head of fixed income at Aberdeen, told CNBC’s “Squawk Box Europe” on Thursday.
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