Fu Peng: Highly concerned! How will the significant rise in global long-term bond yields affect trading of major asset classes?

"Looking at the world from the trading desk, Fu Peng reviews finance." 《Fu Peng Talks · Season 6》fully upgraded! Subscribe now This year marks the tenth anniversary of WallstreetCN’s annual column 《Fu Peng Talks》! 《Fu Peng Talks Season Six》 is fully upgraded. In addition to daily videos, we've added a column discussion group to update Fu Peng's latest market views & chart data interpretations (group updates in real time). In addition to the regular Fu Peng Talks content, we've also added column online reading documents, daily trading focus morning reports, research reports worth attention, recommended e-book lists, and extended reading materials. You can also ask more questions and interact in the community to progress together. To join the column, scan the QR code below to add the assistant and join the exclusive discussion group for 《Fu Peng Talks》. Highly Focused! How will the significant rise in global long-term bond yields affect major asset trading? Looking at the world from the trading desk, Fu Peng reviews finance. Long-term bond yields in major developed countries worldwide have risen significantly, especially for 10-year and 30-year government bonds. The increase has been particularly notable in the UK, Germany, Australia, and Japan, while the rise in US long-term yields has been relatively mild. For instance, since June, the spread between US and German 10-year yields has narrowed further, while the euro has oscillated at the 1.18-1.19 ceiling, with the range around 1.15-1.19. The acceleration of German long-term bond yields outpacing US 10-year bonds has been a key factor recently. Behind the US-German long-term yield difference are two not quite identical reasons. The continued expansion of fiscal deficits in European countries, Japan, and Australia is a core driver of rising long-term bond yields. Following a recent UK budget, market concerns about debt sustainability intensified, and gilt yields climbed rapidly. While Germany maintains relatively strict fiscal discipline, significant increases in defense, infrastructure, and energy transformation spending have breached the traditional “debt brake” constraint. As a commodity exporter, Australia’s fiscal space is affected by global demand swings, leading to increased deficit pressure as well. Japan has introduced another round of stimulus, pushing 30-year government bond yields to multi-year highs. The common trait among these countries is increased debt supply, while demand hasn’t kept pace, causing a sharp rise in term premium. Term premium essentially compensates investors for the extra risk of holding long-term bonds, which manifests as higher yields when fiscal paths deteriorate. Market skepticism over the actual effect of fiscal stimulus further amplifies this pressure. Many analyses suggest that the current round of fiscal expansion has limited impact on the real economy—diminishing marginal returns, structural bottlenecks, and a high-interest-rate environment have weakened the multiplier effect. However, debt/GDP ratios continue to climb even if stimulus fails to boost growth significantly. This “spending without results but leaving more debt” situation triggers a double worry for investors: one, weakening growth outlook; two, greater concern about debt sustainability. As a result, risk pricing dominates the bond market, and term premium replaces growth expectations as the main driver of yields. In countries like the UK and Japan, where outstanding debt is already very high, the market is extremely sensitive to rating downgrades or fiscal instability, with any hint of trouble sparking sell-offs. For the US, with its current surge in productivity, investor confidence in debt sustainability is notably higher than in other countries. The market prices US fiscal risk relatively mildly, with term premium rising less than in Europe and Japan. Furthermore, US economic growth resilience is stronger, inflation is sticky but not out of control, and the Fed has more policy flexibility. These factors have collectively curbed a sharp rise in US bond yields, resulting in a clear divergence from the yield trajectories of the UK, Germany, etc. This explains why, even though currency yields (yen, euro, AUD) seem to be narrowing with US yields (long-term rates rising faster than in the US), their exchange rates remain rangebound—the yen, euro, and AUD can only oscillate and don’t strengthen against the dollar as yield spreads widen. In short, if fiscal policy leads to productivity improvement and real earning power, that drives up the overall interest rate center and strengthens the currency. Otherwise, fiscal concerns mean stocks, bonds, and FX all stay under pressure, and the rate spread won’t push exchange rates higher. Risk Disclosure and Disclaimer The market has risks; investors should exercise caution. This article does not constitute individual investment advice, nor does it take into account the unique investment goals, financial situation, or needs of any particular user. Users should consider whether any opinions, views, or conclusions in this article fit their specific circumstances. Invest at your own risk.