⏳ Reading Time: 6 minutesGovernment bond yields have moved relentlessly higher this year, and the striking feature of that move is how little it seems to care about the economic backdrop. Whatever the data, whatever the signal on growth, the direction of travel has remained remarkably consistent. Last week captured that paradox perfectly: encouraging inflation data, with a softer-than-expected Consumer Price Index (CPI) followed by a subdued Producer Price Index (PPI), gave US Treasuries a strong week of gains, only for those gains to reverse on Friday after weaker activity data. It was a telling sequence. With markets now firmly anchored in their view of monetary policy, even a run of favourable economic data struggled to sustain the rally.
The forces behind higher yields are multiple and deeply interconnected: inflation, central banks, fiscal policy and, increasingly, Artificial Intelligence (AI). Viewed from one angle, rising bond yields are simply another expression of the broader AI investment story.
Where are yields?
To understand today’s market, it helps to step back. The reopening of the global economy after Covid, followed by the war in Ukraine, marked a genuine regime change for interest rates, pulling bond yields out of the low-rate environment that had defined the decade after the Global Financial Crisis. For a while, it seemed yields had found a new equilibrium. Then the conflict in Iran and the resulting energy shock pushed them higher once again.
