Long-term bond yields led gains in July as concerns over geopolitical conflicts and fiscal expansion resurfaced, with investors preparing for higher volatility.
智通财经2026/07/31 09:46- The eurozone and US Treasury yields are set to record their largest monthly gains since March this July, with long-end rates rising noticeably faster than short-end ones. Investors are focusing on the profound impact of Middle East conflicts on fiscal expenditures, debt burdens, and long-term inflation.
- Although there has been no major breakthrough in US-Iran negotiations, oil prices retreated on Friday and some vessels passed through critical maritime routes, leading to a slight decline in bond market yields. However, since the start of the month, the money market has fully repriced for the European Central Bank to raise the deposit rate to 2.75% by March 2027, while the Federal Reserve is expected to deliver two rate hikes by June next year, with the first hike in October now nearly fully priced in.
- Long-term bonds have notably underperformed this month: Germany’s 10-year yield has risen by about 28 basis points to 3.15%, and the US 10-year yield is up roughly 22.5 basis points to 4.65%. Allianz Global Investors’ fixed income specialist noted that the market is concerned not only about inflation but also about increased defense spending due to geopolitical tensions as well as possible additional support measures by governments responding to the energy crisis.
- After hitting a 19-year high of around 5.24% on Thursday, the US 30-year yield declined to about 5.18% on Friday. Strategists at BNY Mellon cautioned that the high correlation between US rate volatility and foreign bond yields indicates a clear cross-border transmission mechanism, with developed market sovereign bonds possibly facing selling pressure.
- The Bank of Japan kept rates unchanged and did not signal an accelerated tightening pace, with the 10-year Japanese government bond yield steady at 2.79%. ING analysts believe that those expecting central bank support for the yen or long-term bonds have been somewhat disappointed, as the Bank of Japan does not appear eager to quicken the pace of rate hikes.
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