The "slow bear" is coming to the global bond market in 2026: its intensity is far less than in 2022, but the pain may last longer.

A global bond sell-off storm is accelerating across developed economies. On September 1, countries including the United States, Japan, the United Kingdom, Germany, and Australia experienced a synchronized sell-off of government bonds, with long-term yields rising to their highest levels in years, and even decades. The Bloomberg Global Government Bond Index yield has increased for four consecutive trading days, reaching 3.72%, the highest level since mid-2008. However, despite the severity of the current sell-off, it pales in comparison to the "bond massacre" triggered by soaring inflation four years ago. Numerical Comparison: The "Growing Pains" of 2026 vs. the "Crash" of 2022 This year, the storm has swept through nearly every corner of the developed economic sphereJapan's 10-year government bond yield has hit 3% for the first time since 1996; the U.S. 10-year yield has surpassed 4.8%, approaching its highest point since October 2023; the U.K.'s 30-year bond yield has reached a new high since 1998; and the bond yields in Germany and France have climbed to levels not seen in over a decade. However, this seemingly brutal sell-off is still incomparable to the bond market collapse ignited by inflation four years ago. Data shows that global government bond yields have risen by about 17 basis points over the past 20 trading days, compared to 62 basis points during the same period in 2022. From peak to trough, bond prices in 2026 have fallen by 4.2%, significantly lower than the 23% drop in 2022. The difference lies in the starting point. At the beginning of 2022, global bond yields were at historical lows, meaning prices were highly sensitive to interest rate changes. In contrast, current yields have rebounded from higher levels, and coupon income provides a greater cushion against price declines for investorsthe average coupon rate in the Bloomberg Global Aggregate Bond Index is 2.68% this year, up from 1.84% in 2022. The higher coupon income somewhat offsets the capital losses. Despite the current sell-off showing little sign of letting up, the relatively mild movements in yields thus far have provided some comfort to seasoned market observers. Meanwhile, volatility in the Bloomberg Global Government Bond yield has declined from a peak of 56 basis points in May to 37 basis points, far below the peak of around 92 basis points in 2022this "dulling" of volatility may be the norm as the market digests multiple structural pressures. "Perhaps it's a calming pill," said Stephen Miller, an advisor at GSFM in Sydney. Although he does not believe bonds have reached a "strong buy" level, at the current yield levels, "bonds are worth considering for yield-seeking investors." Kerry Craig, a global market strategist at J.P. Morgan Asset Management in Melbourne, also noted, "The reality is not as bad as the bond market reflects." Triple Pressures: Inflation, Supply, and the End of the "Era of Cheap Money" Although the scale of this sell-off is smaller than in 2022, the driving factors behind it are more complex and multifaceted, overlapping with one another. Surge in Oil Prices and Resurgence of Inflation The escalating conflict between the U.S. and Iran is pushing international oil prices back above $90 per barrel. Brent crude oil surpassed $91 per barrel on Tuesday, while European benchmark natural gas prices hit a three-and-a-half-year high. The market fears that energy transport in the Strait of Hormuz will continue to be disrupted, causing upward pressure on energy prices that is unlikely to dissipate quickly. The rise in oil prices directly strengthens inflation expectations, leading the market to be increasingly worried that interest rates will need to remain elevated for a longer period. A hawkish speech from Federal Reserve Chair Kevin Warsh at the Jackson Hole Global Central Bankers Conference last Friday acted as a direct catalyst for this round of sell-offs. The market probability for a Federal Reserve rate hike in September soared from 34% before Warsh's speech to 68%. Flood of Supply: Dual Pressure from Government Debt and AI Bond Issuance Deeper pressures come from an oversupply in the bond market. The U.S. federal government's debt level exceeded $40 trillion for the first time in August, with interest expenses for this fiscal year expected to approach $1.2 trillion. Meanwhile, the AI boom has generated another massive financing demandtech giants like Alphabet, Amazon, Meta, Microsoft, and Oracle have issued approximately $220 billion in bonds this year for data centers and AI infrastructure construction. When both the government and tech giants compete for funding in the bond market, the supply pressure is significantly intensified. Japan: The Collapse of the Last Pillar of the Global "Era of Cheap Money" The surge in Japanese government bond yields has far-reaching systemic implications. For a long time, the low yields of U.S. bonds relied on the continuous inflow of cheap foreign capital from low-interest-rate economies like Japan. The yield on Japan's 10-year bonds was only about 1.5% a year ago; it has now doubled to 3%. The 3% figure is the rate assumption used by the Japanese government to estimate bond interest costs when preparing the fiscal year 2026 budgetmarket rates have now surpassed the government budget assumptions. The share of international investors in monthly cash trading of Japanese government bonds has risen from 12% in 2009 to about two-thirds, indicating that some of the funds previously flowing to U.S. bonds are now returning to Japan. Bloomberg strategists note that G10 fixed-income traders are increasingly focused on Japanese government bonds, with Australian bonds also following Japanese bonds in pricing more frequently than U.S. bonds. Bank of Japan Governor Kazuo Ueda has hinted at a rate hike in September, and expectations for an early rate increase are rising. As the world's largest holder of foreign U.S. debt, an increase in domestic yields in Japan could trigger a return of global capital, adding extra pressure to the U.S. bond market. At the same time, the market has fully priced in a rate hike by the European Central Bank next week, with a 92% probability of a rate hike from the Bank of Japan in September. A senior rate strategist at TD Securities for the Asia-Pacific region noted, "The stickier the inflation, the higher and longer the policy rates need to be. Fiscal deterioration and higher term premiums will continue to be focal points in the market." The Market's Next Threshold: The 5% "Psychological Barrier" Currently, no one can assert that yields have reached their peak. Analysts point out that whether it is the rise in energy prices and inflation pressure, the shift from savings to investment preferences, debt market volatility triggered by Trump-style adventurism, the larger fiscal risk premium, or the "crowding out effect" of major corporates issuing bonds, it is challenging to find reasons to believe that the increase in yields will pause in the short term. Ronald Albahari, Chief Investment Officer of LNW Wealth Management in the U.S., warned that if the yield on 10-year U.S. Treasuries breaks through 5%, it will become the "last straw that broke the camel's back," potentially leading to a market sell-off of risk assets. Nancy Vanden Houten, Chief Economist at Oxford Economics, pointed out, "Given the upside risk to inflation, geopolitical uncertainty, record levels of corporate borrowing, and the immense volume of government bond issuance, long-term rates remain susceptible to upward pressure." The rise of Japanese government bond yields is another potential source of pressure, as this could lead to a global capital return to Japan. The impact of this bond sell-off extends far beyond the bond market itself. Treasury yield is an important benchmark for financing costs across the entire economyfrom mortgages to auto loans, student loans, and corporate financingthe comprehensive rise in borrowing costs will transmit to every corner of the real economy. Under the multiple pressures of ongoing conflict in Iran, persistent inflation stickiness, and uncontrollable fiscal deficits, the re-pricing of the global bond market may have only just begun. Compared with the "fast bear" triggered by the central bank's aggressive rate hikes in 2022, this time the pain is more dulled, more sustained, and harder to find a clear endpoint. Ayako Sera, a senior market strategist at Sumitomo Mitsui Trust Bank, noted, "Negative factors for bonds have been steadily accumulating, but so far, there has not been a decisive catalyst strong enough to force investors out of the market."