Why bond yields are rising again and why it matters

Globally, we have seen rising yields and a steepening of the longer ends of the yield curves, and this is despite markets still pricing significant short-term rate cuts in most of the major economies over the next year.

In this report, we discuss why bond yields are rising and their implications:

• One reason for rising yields is higher perceived risks. An increased term premium has been the main cause of the jump in US yields, with a more modest increase in Japan. The US term premium is reconnecting with macroeconomic volatility but is still below its long-term average.
• Another factor for the US looks be a general shift in investor preferences away from dollar assets. Higher US yields have also been associated with a weaker dollar and underperforming US stocks.
• Fiscal issues are also a factor. Markets are becoming more sensitive to budgetary concerns and higher deficits and quantitative tightening are increasing the net supply of ‘safe’ government bonds. Our forecasts suggest net safe asset supply in 2034 will be higher by 4.5% of GDP than we thought a year ago.
• Using the Oxford Global Economic Model, we find that even if US yields rose 150 basis points above our baseline in 2025-2026, US GDP would only fall 0.3%. But there is a risk that a large yield rise could spark a big repricing of other assets.

Download our report to learn more.