Long-dated bonds around the world are under the cosh again. From the U.S. to France, from Germany to Japan, yields on government debt with maturities of 10 years and beyond spiked to fresh multi-year or multi-decade highs on Monday.
The pressure is coming from all sides — oil back above $90 a barrel on evaporating hopes of a U.S.-Iran peace deal; worries over a more aggressive rate-hike cycle in Japan; fiscal fears in France and the U.S., where the federal debt is about to top $40 trillion; soaring government interest payments; sluggish demand at government debt auctions. How long before other parts of the financial market universe start to crack too?
Global stock markets and corporate earnings may be purring along nicely, but the global economy's performance is less convincing. July economic indicators from China and Q2 Japanese GDP data show Asia's two largest economies aren't firing on all cylinders. The figures from Beijing were particularly worrying — retail sales, business investment, industrial production all missed economists' forecasts, once again dousing hopes that domestic demand is finally emerging from its post-pandemic slump.
If you take into account the sluggish 1.5% annualized U.S. GDP growth in the second quarter, that's three of the world's largest economies under-performing. Policymakers will want to see how Q3 pans out, but more incoming data like this will likely cast doubt on the wisdom of rate hikes in the U.S. and Japan, and accelerate calls for more stimulus in China.
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