Bond selloff drives US benchmark beyond 5%; stocks rattled

Japan's 10-year bond yield JP10YTN=JBTC hit a three-decade high above 3%. Australian 10-year yields AU10YT=RR jumped by more than 7 bps to close at 5.41%, capping a climb of 40 bps in just three weeks.

In Germany, the 10-year benchmark yield DE10YT=RR sat near its highest since 2009 at 3.55%, while French 10-year yields FR10YT=RR were hovering near an 18-year high.

The Telegraph newspaper of Britain reported that the Bank of England could stop selling the 20- and 30-year gilts it holds, presumably as a way to reduce pressure on long-dated debt. South Korea's incoming finance minister told parliament he plans to stabilise volatility, if needed, and is closely watching rising yields.

"If yields keep rising, then there's bound to be further spillover effects," said Khoon Goh, ANZ's head of Asia research in Singapore.

Part of this week's bond selloff, he said, was also attributable to a shift in expectations for short-term U.S. interest rates which traders expect to be hiked by 25 basis points (bps) on Wednesday and by a further 40 bps by the middle of next year.

Sovereign yields climbed further on Tuesday, led by the 10-year U.S. Treasury yield which hit a nearly two-decade top, while signs of discomfort deepened for borrowers and global investors.

Yields rise when bond prices fall and they have climbed on a mix of worries about inflation and ballooning sovereign debt.

The selloff is significant because it raises borrowing costs for governments, leaving them with larger interest bills and less to spend on social, defence and other programmes.

The 10-year Treasury yield topping 5% is also eye-catching because it is a benchmark price not just for lending rates in the U.S. but for nearly every other asset in financial markets.