To See Long Bond Volatility Clearly, Look Globally

Chatter about bond yields has dominated financial headlines we follow recently. And, in our opinion, much of the coverage misses an obvious reality. We think there is a very easy way to cut through the cacophony of debt trouble chatter. Come along and see.

Whenever long-term bond yields jump somewhat, as they have lately, we see a common error in a lot of the coverage: a narrow focus on individual issuers that fuels country-specific narratives.^[i] In the UK, 30-year yields are up, and headlines we follow are linking it to a cabinet reshuffle that allegedly implies austerity won’t feature heavily at November’s Budget.^[ii] This treats rising yields as a UK-specific phenomenon. Likewise, we see a lot of coverage linking higher US 30-year yields to concerns of budget turmoil if the US Treasury has to pay back tariff revenue in a hurry after an appellate court upheld the Court of International Trade’s ruling the universal and reciprocal tariffs were illegal—as if US yields alone are spiking.^[iii] Coverage of French yields’ spike also treats rising yields as a domestic-orientated development, continuing to take the finance minister’s comments about a potential IMF bailout out of context, in our view, spinning them into debt crisis risk.^[iv] And higher German yields, we are told, result from investors’ expectations for higher public spending.^[v]

Four countries, four yield rises, four allegedly domestic explanations.

May we offer a different one? Bond markets are global, and our research has found that developed-world yields are highly correlated, meaning, they move together much more often than not. To us, that implies yields are up in these nations because yields are up globally. Consider: Italy is newly the posterchild for European fiscal sanity, yet its 30-year yield is up almost 30 basis points (0.3 percentage point) over the past month.^[vi] Spain’s is up, too, despite relative calm on the deficit front.^[vii] And Canada’s.^[viii] And Australia’s.^[ix] See for yourself. Exhibit 1 shows several nations’ cumulative rise in 30-year yields since 22 August.

Exhibit 1: Around the World in 30-Year Yields

Source: FactSet, as of 2/9/2025. Cumulative change in 30-year benchmark government bond yields, 22/8/2025 – 2/9/2025.

In our experience, moves like this get a lot of attention because the investing world thinks of bonds as staid, boring and stable. And in a sense they are, with overall less expected short-term volatility than stocks, according to our analysis of historical data. But less volatility isn’t no volatility. Our studies show bond markets do wiggle, up and down, as sentiment ebbs and flows. This looks to us like a classic sentiment wiggle in a year that has seen modest yield increases across the board.^[x] Exhibit 2 contrasts the recent and year-to-date moves in 30-year yields. Amusingly, this year’s biggest mover amongst these is actually the Netherlands, where debt is below 50% of gross domestic product (GDP, a government-produced measure of economic output) and deficit concerns are nonexistent.^[xi] We have seen plenty of talk about Dutch pension reform weighing on demand for long-term yields, but that seems like a marginal, Europe-wide driver, not a Dutch-specific one, given the Netherlands’ small pool of marketable debt.^[xii]

Exhibit 2: 30-Year Yield Volatility in Perspective

Source: FactSet, as of 2/9/2025. Cumulative change in 30-year benchmark government bond yields, 31/12/2024 – 2/9/2025 and 22/8/2025 – 2/9/2025.

Deficit concerns are an easy target. We get it. But according to our review of financial publications, they have been omnipresent in the UK, France, the US and many others for years. And years. And years. Through high yields and low. They are a pulsating constant. Tying acute volatility to any of this seems like searching for meaning when markets are bouncy, a classic error. Sometimes volatility is just volatility.

May we offer you an alternate perspective? With long yields up somewhat this year and monetary policy institutions cutting interest rates, yield curves have steepened—especially outside the US.[xiii] This is a pretty solid economic indicator, according to over a century of economic theory and data, one likely pointing to faster growth ahead. But instead of cheering, we have seen bond market watchers jeering. This is the kind of false fear we find bull markets thrive on—a beautiful brick in the proverbial wall of worry.