Global Bonds Rally Due To Weak US Data

30Y US-T Bond

It hasn't been a week since UK 30-year gilt yields hit 5.72% intraday before settling at 5.69% on Tuesday - their highest since May 1998. Now, global bonds rally after a major sell-off due to weak US economic data.

There has been a lot of movement regarding bonds recently, but how do they work?

• Bonds are simply loans; the principal is repayable at maturity, with coupons paid along the way. Yields are, in effect, the interest rate for borrowing. Rising yields mean investors demand higher returns, and it signals what the market is feeling.

• It's like a credit score; a lower score means you're at a higher risk, so you need to pay more.

• Yields and bond prices are also inversely correlated. Higher yields mean lower prices, eroding value for bondholders!.

• So last Tuesday, when UK gilts soared, the reason was that the market was telling the government, "We're feeling a little sceptical about your borrowing right now", causing a massive sell-off.

The flip side: US Data causes global rallies

On Wednesday, sovereign bonds bounced back after a sharp global selloff, and the trigger was well US job openings came in weaker than expected. The Job Openings and Labour Turnover Survey (JOLTS) showed 7.18 million job openings versus forecasts of 7.38 million. Fewer job openings signal a cooling labour market, and for the first time since 2020, in the US, there are now more unemployed people than there are available jobs.

See markets change based on expectations or anticipations, investors bet that the Federal Reserve will cut interest rates more aggressively (lower rates boost investment spending and hence more jobs).

So the bond market reacted fast, as above, the yield on 30-year US treasuries fell from nearly 5% to around 4.7%. And 30-year UK gilt yields, which earlier hit their highest level since 1998 at 5.72%, eased back slightly to 5.5%. Remember, bond yields move inversely to prices, so when yields fall, it's a sign or a signal that investors are piling back into bonds.

The bigger picture: a tricky mix of supply, deficits & risks.

Don’t mistake one rally for a regime change. Several structural headwinds still loom over long-dated debt. This rally came after months of strain in government bond markets.

• Central banks have stepped back from crisis-era bond purchases, but governments are still issuing record amounts of debt, a case of more supply and limited demand, a mismatch that pushes term premia up.

• Interest rates are still relatively high due to fiscal worries; rising deficits in the U.S., UK and parts of Europe are keeping investors cautious and demanding higher compensation to hold duration.

• Inflation worries: inflation is hot (especially in the UK), and fiscal policies (such as cuts) can cause even more problems.

• Tariff/legal noise: Market narratives have even pointed to court rulings that cast uncertainty over tariff revenues, alongside Dutch pension and policy stories, as ingredients in recent volatility. None is definitive on its own, but they’ve added to the jitters of the bond market.

What's next?

The pressure on long-term debt markets isn't going anywhere anytime soon, and it's interesting to see how it's going to play out. One thing to look out for is the Federal Reserve’s next interest rate decision set for September 16–17. Investors will be watching closely for tone and clues on the path ahead, especially whether this is just the start of a cut cycle or the Fed remains cautious for now.