Global bond markets sold off, and that’s not a great sign for stocks

What’s going on here?

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Global bond markets have been taking some tough hits this week, and that selloff is sending yields to serious heights.

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What does this mean?

Investors aren’t loving the stubborn inflation, shaky politics, and ballooning country debt loads that are out there now – so they’re putting some distance between bonds and their portfolios. As a result, bond prices have slid sharply and their opposite-moving yields have climbed sharply. US Treasury yields are now brushing up against a steep 5%, UK gilt yields are at their loftiest since 2008, and even Japan’s famously slim yields have hit a decade-high above 1.1%. Here’s the deal: rising yields can mean an economy is holding steady, but they can also flash warning signs about the long-term outlook for inflation and interest rates. Zoom out and it looks like we’ve hit a turning point: after decades of falling interest rates, the trend appears broken, and we may now be in an era of “higher-for-longer” lending costs.

Why should I care?

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For markets: No bueno for stocks.

When bond yields rise, stock investors tend to get anxious. And when longer-dated bond yields climb faster than shorter-term ones – a.k.a. “a steepening curve” – that’s often worse. So keep a close eye on those percentages, because if they keep moving upward, that S&P 500 rally might be seriously tested.

The bigger picture: Risks and rewards.

Though bonds may be stumbling, gold and bitcoin have been on a winning streak in recent months – proof that investors are worried that governments struggling with massive debt loads might turn to extreme financial measures that can fuel inflation and weaken traditional currencies. But there’s a silver lining here: with bond yields high again, they could finally offer enough return to make those risks seem worthwhile. So don’t count these assets out just yet – they may be ready for a comeback.