The yield for German 10-year bonds has hit its highest level since September 2015, as fears of inflation returning shake up the world’s bond markets.
German 10-year bond yields rose to 0.77 pct, as prices hit their lowest for two years and half, while 30-year bond yield at 2-year of 1.43 pct, as reported by Reuters.
The prices are being impacted by fears of inflation rising and a perception that central banks will increase rates sooner than previously thought.
“The expectation of tighter policy is now, at last, starting to weigh on broader financial conditions. Nevertheless, it might indicate that the equity and credit markets will need some time to digest the recent repricing before taking the next step,” said Jan Hatzius, chief economist at Goldman Sachs.
Moreover, demand for US government debt has weakened, pushing on the yield on 10-year Treasuries to a four-year high. UK government debt is also under pressure, pushing up yields to the highest level since May 2016.
Despite the fall out in equity markets, the causes of the rise in bonds are not necessarily negative, as the high yields could be a sign of healthier developed market economies and a return to financial normalisation.
The higher bonds yields are also sign that the market is finally starting to price in a return of inflation.
The high price in bonds has also influenced European stocks which fell for the sixth day in a row this Monday, also hit by the negotiations between German Chancellor Angela Merkel’s conservative party and the Social Democrats, which broke down over the weekend due to disagreements over healthcare and labour policy.
The talks failed to secure a coalition government on Sunday and will continue today and beyond if no settlement is reached.
Worries resulted in German DAX opening 100 points lower at 12,685 before falling further to trade 140 points lower.
German financial companies were big fallers, Commerzbank and Deutsche Bank were both down over 1 percent.