Why there’s significant pressure on global bond markets due to several interconnected factors:

1. Persistent High Inflation:
* Inflation remains stubbornly above central bank targets in many major economies (like the US, Eurozone, UK).
* High inflation erodes the real value of the fixed interest payments bonds provide.
* This forces investors to demand higher yields (interest rates) as compensation for the inflation risk.

2. Central Bank Monetary Tightening:
* To combat inflation, central banks (Fed, ECB, BoE) have aggressively raised policy interest rates.
* Higher policy rates directly push up shorter-term bond yields and exert upward pressure along the entire yield curve.
* The expectation that rates will stay “higher for longer” than previously anticipated is a key driver.

3. Massive Government Debt Issuance (Supply Glut):
* Governments globally are issuing enormous amounts of new debt to fund:
* Budget deficits (often structural, not just cyclical).
* Pandemic-related spending hangovers.
* New initiatives (e.g., green transition, industrial policy, defense spending).
* This surge in supply overwhelms demand, pushing prices down and yields up. The US Treasury market is a prime example.

4. Reduced Demand from Major Buyers (Quantitative Tightening – QT):
* Central banks are no longer large net buyers of bonds; they are actively reducing their balance sheets (QT).
* This removes a massive source of consistent demand that previously suppressed yields.
* Other traditional buyers (like commercial banks, foreign central banks) may also be less active due to regulatory changes or domestic priorities.

5. Fiscal Dominance Concerns:
* Markets are increasingly worried that massive government borrowing needs could force central banks to prioritize keeping government borrowing costs manageable over controlling inflation.
* This could lead to a loss of central bank credibility and even higher inflation expectations, further pressuring bond yields.

6. Geopolitical Risks & Economic Uncertainty:
* Conflicts (like Ukraine, Israel/Gaza), trade tensions, and global economic slowdown fears create volatility.
* While this can sometimes spark “flight-to-quality” buying of safe-haven bonds (like US Treasuries), it also fuels:
* **Commodity price volatility:** Impacting inflation.
* **Supply chain disruptions:** Adding to inflationary pressures.
* **General risk aversion:** Making investors demand higher risk premiums.

7. Shifting Market Sentiment & Technical Factors:
* As yields rise, losses mount, triggering forced selling by leveraged investors (hedge funds, some institutions) to meet margin calls or stop-loss thresholds.
* This selling creates a negative feedback loop, pushing prices down further and yields higher.
* Breaches of key technical levels can accelerate these moves.

8. Reassessment of the “Neutral” Interest Rate (R*)
* Investors are questioning if the long-term equilibrium interest rate (R*) is higher than pre-pandemic estimates.
* Factors like persistent inflation, large fiscal deficits, deglobalization, and productivity trends suggest the cost of capital might need to be structurally higher.

Consequences of this Pressure:

* Higher Borrowing Costs:** For governments (increasing debt servicing burdens), corporations (impacting investment), and consumers (mortgages, loans).
* Market Volatility:** Sharp swings in bond prices create uncertainty across all financial markets.
* Portfolio Losses:** Investors holding existing bonds suffer capital losses as yields rise.
* *
Economic Slowdown Risk:** Significantly higher borrowing costs can dampen economic growth.
* **Stress in the Financial System:** Rapid, large moves can expose vulnerabilities in banks, pension funds, and other leveraged institutions.

In essence, the bond market is caught in a tug-of-war between persistent inflation forcing central banks to keep rates high, massive government borrowing flooding the market with supply, reduced demand from key players, and heightened global uncertainty. This combination creates powerful upward pressure on bond yields and downward pressure on bond prices.