Treasury yields surge to multi-decade highs, JGB yields follow

What happened

U.S. government bond yields extended their climb this week. The 10-year Treasury yield rocketed to a 19-year high on Wednesday, after new services and manufacturing sector data added to concern about further Federal Reserve rate hikes. The upward momentum continued, with the 30-year Treasury yield reaching its highest level since 2004.

The move spread beyond the United States. On Thursday, the Japanese 10-year government bond yield rose to a 30-year high, following the surge in Treasury yields, in what was described as a historic day for global bonds.

Why it matters

Government bond yields are the reference price for money across the financial system. When long-dated yields move to levels not seen in decades, the cost of discounting future cash flows changes, which typically reaches equity indices, and interest rate differentials between countries shift, which is the main channel into currency pairs such as the dollar against the yen and the euro.

Gold carries no coupon, so periods of rising real yields tend to alter its appeal relative to interest-bearing assets, and the metal is also sensitive to the dollar. Stronger activity data that revives expectations of further central bank tightening can feed through to oil via the growth and dollar channels, while crypto has historically reacted to broad shifts in liquidity conditions and risk appetite. A simultaneous repricing in both Treasuries and Japanese government bonds widens the set of markets exposed.

What to watch

Further releases of U.S. services and manufacturing sector data referenced as the trigger for the yield spike, along with communication from the Federal Reserve on the path of rate hikes, and whether Japanese government bond yields continue to track moves in Treasuries.