Global Bond Yields Climb as Geopolitical Jitters Rattle Markets

Volatility gripped the fixed-income market over the last five sessions as the risk of escalating tensions between Europe and the United States pushed sovereign bond yields higher on both sides of the Atlantic. While Donald Trump’s decision to back away from tariff threats over Greenland eased some investor fears, the U.S. 10-year Treasury note continues to trade with a yield above 4.2% in the secondary market.

Despite the release of several key macroeconomic indicators for U.S. growth, the market remains more attuned to the political implications of statements from figures like Trump. With no short-term changes expected in the Federal Reserve’s monetary policy, political rhetoric is taking center stage.

“Markets have dispelled some of the Greenland-related uncertainty, but I doubt this is the last we’ll hear of Trump’s ambitions to acquire the island, so new episodes of severe volatility are likely ahead,” commented Wells Fargo strategist Aroop Chatterjee.

As investors shift their focus back to the conflict in Ukraine, the German 10-year bund yield climbed to 2.9% by the end of the week. Debt from Europe’s peripheral countries also saw yields rise, leaving the Italian 10-year bond at 3.5% and its Spanish counterpart at 3.25%.

Amid the geopolitical noise, Spain’s Treasury successfully placed a 10-year syndicated bond this week, attracting record demand of nearly 145 billion euros. The strong investor appetite resulted in a financing cost of 3.32%, just 6 basis points above the bond’s price at the time of the auction and nearly level with its closing yield in the secondary market.

Risk aversion in fixed-income is now turning towards Japan. The Bank of Japan decided to hold its interest rates steady this week as the market braces for elections in two weeks. The move sent Japanese sovereign bond yields climbing again, with 10-year notes yielding over 2.2%, a multi-decade high. Longer-term debt recently hit all-time highs.