Several factors are driving bond yields higher worldwide (chart). The war in the Middle East in March boosted yields amid concerns that soaring oil prices would revive inflation. The war, along with other geopolitical crises, is bound to increase defense spending and widen already bloated government deficits.
Central banks are increasingly pivoting from easing to tightening their monetary policies (chart).
As a result, 10-year government bond yields have increased almost everywhere since the start of this year (chart). Japan’s bond yield has risen the fastest among developed economies, as the Bank of Japan has raised its official interest rate to stop a free-falling yen from boosting inflation. This is forcing carry traders to cover long bond positions worldwide, which they financed with cheap credit raised in…
