Black Tuesday: global markets tumbled together and Wall Street's 'prophet' spoke out as soaring bond yields raised concern. Financial crises often manifest as debt crises. On August 18, during Asia-Pacific trading, stocks, futures and the Treasury market all sold off. U.S. Treasury yields across maturities kept climbing; the 30-year yield reached 5.3242%, its highest since 2007. Japan's 30-year yield rose to 4.135%. French borrowing costs hit their highest since 2008, German yields approached 2011 levels, and U.K. yields neared 6%.
Analysts believe persistent Middle East geopolitical conflict makes markets fear the current world order leaves economies more exposed to supply shocks and sustained inflation pressure. At the same time, with U.S. debt at 40 trillion dollars, bond investors are starting to worry the government cannot control spending, stimulating the economy and keeping rates high for long. BofA chief strategist Michael Hartnett predicts U.S. debt will not only break 40 trillion dollars in coming days but surge toward 50 trillion by around 2029.
Tuesday afternoon, the MSCI Asia-Pacific index fell 1% to 275.95. Japan's stock market dropped more than 2.5%; South Korea's benchmark, up 3.4% in the morning, accelerated its slide after noon, widening losses beyond 2%. European and U.S. stock-index futures and nonferrous-metal futures all sold off. The across-the-board drop in developed-economy government bonds is significant for global asset pricing. From inflation to the debt-laden AI boom, many worries are concentrated in this picture, with nearly all developed economies' bond yields surging.
Chris Iggo, CIO of AXA IM Core, said it is hard to judge what yield level would improve the total-return outlook for long-dated fixed-income assets. The only factor that might change this is suddenly weaker economic data or some external shock the latter seeming more likely.
Hartnett noted the trend will not reverse unless the 5-year U.S. Treasury yield falls below 3.25%, which is almost impossible without a severe deflationary shock or recession. He summed it up in one line: 'U.S. stocks hit a record high on the same day U.S. Treasury yields hit a periodic high that is reality.'
