The sell-off in global bonds deepens as investors lower their expectations for a Fed rate cut.

Sold-offs in global bond markets are accelerating, fueling concerns about public finances and raising the specter of rising borrowing costs for consumers and businesses around the world.

Bond yields have mostly risen globally, with the 10-year U.S. Treasury yield hitting a new 14-month high of 4.799% on Monday, as investors reassess the pace at which the Federal Reserve might cut bonds. interest rate.

In the UK, 30-year bond yields are hovering at their highest level since 1998, and the country’s 10-year yield recently reached levels not seen since 2008.

Japan, which is working to normalize its monetary policy after ending its negative interest rate regime early last year, has seen the yield on its 10-year government bonds rise by more than 1%, reaching its highest level in 13 years on Tuesday, according to LSEG data.

In Asia-Pacific, Indian 10-year bond yields saw their biggest rise in more than a month on Monday and are close to their highest level in two months, at 6.846%. Yields on benchmark 10-year government bonds from New Zealand and Australia were also near their highest level in two months.

The only exception? China. The country’s bond market is in the midst of a crisis even as authorities try to slow the recovery. China’s 10-year bond yield plunged to a record low this month, prompting the country’s central bank to suspend its purchases of government bonds last Friday.

Bonds were shaken by a confluence of factors, market watchers told CNBC.

Investors now expect fewer rate cuts from the Fed than before and are demanding to be adequately compensated for the risk of owning bonds that mature in the future because they worry significant government budget deficits.

Last month, the Federal Reserve predicted only two rate cuts in 2025, after announcing twice as many cuts. A more positive-than-expected U.S. jobs report on Friday made the Fed’s rate cut path more uncertain, analysts said. Nonfarm payrolls increased by 256,000 in December, surpassing the 212,000 added in November and beating the Dow Jones consensus forecast of 155,000.

The U.S. economy is strengthening faster than expected, which means the Federal Reserve has less or no room to cut interest rates, and the bond market is reflecting that, said Ben Emons, founder of FedWatch Advisors.

Bond yields generally rise when interest rates rise. Bond yields and prices move in opposite directions.

The chances of just one cut this year increased after the jobs report was released, according to CME Group’s FedWatch indicator.

“After (last week’s) jobs report, we only expect between one and two rate cuts,” said Steve Sosnick, chief strategist at Interactive Brokers.

Additionally, high government deficits also contribute to bond selling as the supply of debt increases in the market.

The US government reportedly recorded a deficit of $129 billion in December, 52% more than a year ago. The UK’s public sector net debt – excluding public sector banks – stands at more than 98% of its GDP.

UK government securities markets are selling off further for a similar combination of reasons, said Zachary Griffiths, senior strategist at CreditSights. “This is mainly due to unease around the fiscal situation, but the fall in sterling is also fueling inflationary concerns,” he added.

The implications of rising yields for governments and businesses are relatively straightforward, Sosnick said: “They’re not good!”

Higher yields increase the amount of money needed to spend on debt service, particularly in the case of governments that run persistent deficits, analysts say.

Taken to the extreme, this is where “bond vigilantes” surface and demand higher rates to take on these large debts, Sosnick said.

“Bond investors are appealing to global fiscal authorities to rein in their fiscal trajectories, lest they be subjected to further wrath,” said Tony Crescenzi, executive vice president of Pimco.

Rising U.S. yields also make it harder for some central banks to cut short-term rates, Frederic Neumann, chief Asia economist at HSBC, said on Monday, citing Bank Indonesia’s recent decision to keep interest rates unchanged.

A large depreciation of Asian currencies is also expected, said another HSBC analyst. The widening gap between government bond yields in Asia and the United States is leading to capital outflows from Asia as well as fewer capital inflows from the rest of the world to Asia.

Governments aren’t the only ones affected by rising bond yields. Many companies’ borrowing costs are compared to government bonds, and as government bond yields rise, so do corporate borrowing costs.

Since companies generally have to offer a higher yield than corresponding government bonds to attract investors, the burden on them is likely higher.

Potential consequences include lower profits or missed opportunities, Sosnick said, pointing to corporate bonds that typically must offer higher rates than government debt.

Rising yields tighten borrowing costs, the dollar strengthens and stocks tend to fall, affecting consumer confidence, which then has a knock-on effect in terms of housing and retail spending, said Emons of FedWatch Advisors.

Market participants are now awaiting the inauguration of US President Donald Trump next week.

The ‘real test’ will come once Trump takes office next week, when a big wave of executive orders on tariffs and immigration restrictions is expected, industry observers told CNBC .

Bond markets are currently experiencing something of a “buyers’ strike,” observed Dan Tobon, head of G10 FX strategy at Citi.

“Because why take a leap of faith now, when you’re going to have a lot more information in just a few weeks? And so this buyers’ strike means that yields continue to rise quite aggressively,” he said. declared.

“If these measures are perceived as being inflationary or having negative consequences on the budget deficit, then the rout risks continuing,” he added. Conversely, if policies are relatively modest, bonds could stabilize or even reverse, he said.