Please see the below article from Brooks Macdonald detailing their discussions on global bond markets. Received this morning 22/05/2025.
What has happened
Both equity and bond markets were on the back foot yesterday. The catalyst was renewed investor angst around US debt sustainability with negotiations continuing over a US tax-cut and spending-cut bill – a bill which in its current form is expected to add to the longer-term US debt and interest cost burden. That backdrop drove a weaker-than-expected US government bond auction for 20-year maturity bonds yesterday, which in turn pushed longer-dated bond yields up in particular – the US 30-year government bond yield closed yesterday above a key psychological level of 5% for the first time since October 2023, and a fraction away from its highest level since 2007.
A global rise in government bond yields
While yesterday’s rise in government bond yields included notable rises in longer-dated yields, it was not just a US-story. Yesterday saw a further nudge up in longer-dated government bond yields across developed economies, from the US, to the UK, to Japan. Looking at 30-year government bond yields, while the US topped 5%, the UK was over 5.5% yesterday and trading around its highest levels since the late 1990s, while over in Japan the yield at one point yesterday hit 3.185%, an all-time high.
Latest Purchasing Manager Index (PMI) data
A key focus today will be the latest preliminary PMI economic activity survey data across key economies globally for May – it is likely to be of particular interest as it will offer a snapshot on how the global economy is responding since US President Trump unveiled his trade tariffs back on 2 April. For Japan where the data was out earlier this morning, that picture is not overly encouraging – Japan’s overall composite measure (which includes manufacturing and services) fell into month-on-month contraction, while the manufacturing print has now chalked up its 11th consecutive print of month-on-month contraction. Elsewhere, the German PMI is also out this morning, recording a fall in composite activity in May, and marking the first contraction this year.
What does Brooks Macdonald think
Global bond markets are arguably sending some concerning signals currently. While governments around the world might be hoping to sustain spending commitments and manifesto promises to their electorates, against this, global bond markets, with higher yields, are as a result driving an unwelcome reappraisal of what level of government debt might be deemed sustainable and what is not. Given this investment backdrop, this morning’s UK government borrowing figures will likely only add to that broader market concern – the April numbers show an unexpected rise in UK public sector net borrowing to £20.2bn for the month, up year-on-year (versus £19.2bn in April 2024) and well ahead of a Reuters poll that had expected a fall to £17.9bn – the UK’s latest month’s borrowing figure is the highest, in any month, since April 2021, and is the fourth-highest borrowing figure for April since monthly records began back in 1993.
Bloomberg as at 22/05/2025. TR denotes Net Total Return.
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Alex Clare
22/05/2025