Global Bond Market Selloff: Are We at Another Turning Point?

Author: Xiaobing, Shenchao TechFlow

On May 19 during trading hours, the US 30-year Treasury yield surged to 5.177%, hitting its highest level since August 2007.

The last time a 30-year Treasury bond coupon was formally issued at 5% was also back in August 2007. Two months later, two hedge funds under Bear Stearns collapsed, kicking off the subprime mortgage crisis. This isn't to say history will necessarily rhyme, but when the world's largest, deepest, and so-called "risk-free" market pushes yields back to levels seen on the eve of a financial tsunami, you'd better understand exactly what's happening.

What's more concerning is that this time, it's not just the US.

It's Not Just the US Rising; the Whole World is Selling

If it were just US Treasury yields moving up, the story would be simpler – markets pricing in inflation and expecting the Fed to hike rates, that's it.

But the events of the past week are on a completely different scale.

From May 15 to 18, long-term government bond yields across major developed countries experienced a rare "coordinated surge":

Japan's 30-year government bond yield broke through 4%, hitting an all-time high since the instrument was issued in 1999; the UK 30-year gilt yield surged to its highest level since March 1998; Germany's 10-year Bund yield touched its highest point since May 2011.

If you overlay these charts, a chilling picture emerges: Bond traders in Tokyo, London, Frankfurt, and New York – across four time zones – made the same decision in almost the same week: sell.

According to Bloomberg statistics, this was the worst week for US Treasuries since the shock of Trump's tariffs in April 2025, with the 30-year yield approaching the cyclical peak of 2023.

Bond traders are among the most conservative people on the planet. When they start selling in unison, the market senses not just panic, but something structural beginning to loosen.

What Simultaneously Hammered Global Bond Markets?

Laying all the clues on the table, three main threads intertwine:

Thread one: Oil.

Following the outbreak of the US-Iran war in late February, tensions in the Strait of Hormuz have persisted for nearly three months. In April, US CPI hit a three-year high year-over-year, and PPI recorded its largest increase since early 2022, rising 6% year-over-year. This isn't a gentle return of inflation; it's a clear second shock.

The logic for bondholders is very straightforward: if inflation can't be suppressed over the next five years, locking in a fixed coupon for 30 years means losing purchasing power for every year you hold it. So, either sell or force the issuer to offer a higher coupon for compensation.

That's why this round of selling is concentrated in long-duration bonds like 10-year, 20-year, and 30-year. The longer the duration, the more sensitive it is to inflation.

Thread two: Debt.

The US government's fiscal deficit continues to expand, requiring the Treasury to issue more debt. Auctions for 3-year and 10-year Treasuries both met with weaker-than-expected demand, indicating that as yields keep rising, investors' capacity to absorb the massive supply of US debt is being tested.

Supply is increasing, but demand is shrinking. Foreign central banks, especially the largest buyers of US Treasuries over the past two decades, are reducing their holdings. This is a very significant shift: US Treasuries no longer have a natural buyer.

Japan's situation is similar. Markets are concerned the Japanese government might need to introduce an extra budget to cope with economic pressure, worsening deficit expectations. The UK's troubles are more direct: Prime Minister Starmer's political crisis has further shaken market confidence in UK fiscal discipline, pushing the 30-year gilt yield to a 28-year high.

Thread three: Central banks' "credibility issue".

This is the most subtle layer.

At its latest meeting, the Federal Reserve held the interest rate in the 3.5%-3.75% range. Surprisingly, internal dissent emerged, with three out of twelve voting members openly opposing the dovish leaning language in the statement. This hawkish dissent was interpreted by the market as a warning to the incoming new Chair, Kevin Warsh: don't even think about cutting rates easily.

Interest rate futures markets have now pushed the probability of a December rate hike to 44%, whereas at the start of the year, the market generally expected at least two rate cuts.

A complete 180-degree reversal in expectations within less than five months.

What Does 5% Mean?

Many people don't have a strong feeling about "US Treasury yields." What does it actually have to do with your life, your assets, and the little bit of Bitcoin in your account?

Let's put it this way.

The 30-year US Treasury yield can be understood as the "waterline" for global asset pricing. It's the closest thing to a "risk-free" long-term rate of return on the planet. The fair valuation of all other assets – stocks, real estate, gold, Bitcoin, private equity – is essentially built by adding a risk premium on top of this waterline.

When the waterline rises, everything needs to be recalculated.

Here's a concrete example: you own a tech growth stock. The market was initially willing to give it a 30 times price-to-earnings (P/E) ratio because everyone believed in its cash flow over the next decade. But now, a 30-year Treasury bond can give you a 5% "risk-free" return. That means the same money, parked in bonds for 30 years, can return more than double the principal. Why take the risk of giving an uncertain tech company a 30x valuation?

Hence, valuations must come down.

Mortgages are similar. The US 30-year fixed mortgage rate essentially follows the 10-year Treasury yield. A 10-year yield breaking above 4.6% means new mortgage applicants could face rates above 7%. This is why if the 30-year Treasury yield continues to climb above 5%, pressure could extend beyond the bond market to real estate, small-cap stocks, high-valuation growth stocks, and any other sector reliant on low-cost long-term capital.

As for gold and Bitcoin, their common feature is that they don't generate cash flow.

In a zero-interest-rate era, this wasn't a problem because your alternative was a Treasury bond yielding 0.5%. But now, the alternative has become a Treasury bond yielding 5%, making the situation entirely different.

Over the past three weeks, Bitcoin's performance has perfectly illustrated the phrase "macro alternative asset dynamic."

During the week the 10-year Treasury yield broke above 4.5% and the 30-year approached 5.1%, US Bitcoin spot ETFs saw net outflows of approximately $700 million;

Bitcoin's price dropped from above $82,000 back below $80,000. On May 19, the same day the 30-year yield hit 5.18%, Bitcoin, along with altcoins and risk assets, came under pressure.

The logic chain is simple:

Institutional investors face a very specific arithmetic problem: put $1 million into a 30-year Treasury, get a steady $50,000 annually for thirty years, with the principal returned at maturity – nearly zero risk; put the same money into Bitcoin, betting it can outperform that 5% compound interest.

The insidious power of compounding is that 5% over thirty years results in a 4.3x return. This means Bitcoin must outperform 4.3x over 30 years just to "break even" with this opportunity cost. Sounds easy? That's only if you can withstand any drawdown of over 50% along the way.

This is why the logic of capital rotation – "every dollar in Bitcoin is a dollar not earning that 5% return" – will continue to pressure non-yielding assets.

What's Truly Worthy of Vigilance is Something Else

Let's go back to the number 5.18% itself.

Many analysts interpret this as "short-term tightening pressure." I disagree.

If you take a long-term view, the biggest macro backdrop for global asset prices over the past forty years has been the secular decline in interest rates. The US 10-year Treasury yield was 15% in 1981 and fell to 0.5% in 2020. For 40 years, the waterline kept dropping. All "value investing logic," all "60/40 portfolios," all "tech stock valuation models," and even the narrative of whether Bitcoin can become "digital gold," have been built upon this long-term trend.

The question now is whether this 40-year downtrend may have already ended in 2020.

What we are witnessing is the early stage of the waterline starting to reverse course and rise.

"The market is beginning to price in that the Fed will have to work harder to suppress inflation," said Ed Al-Hussainy, a portfolio manager at Columbia Asset Management. He added that this sell-off reflects not only concerns about the inflation path but also the acceleration of the economy itself.

If his assessment is correct, then 5.18% is not the finish line, but the starting point of a new range.

A deeper layer of the problem is debt.

US federal debt is approaching $37 trillion. Every 1 percentage point increase in interest rates means the US Treasury must pay hundreds of billions of dollars more in interest annually. When interest expenses surpass the defense budget, surpass healthcare spending, and eventually eat into everything, the market will force the government either to drastically cut spending or to monetize the debt.

Historically, every large debt cycle has ended with one of these two paths.

US Treasuries are called "ballast" because they serve as the underlying collateral for the global financial system. Bank capital adequacy ratios, insurance company solvency, pension fund duration matching, hedge fund repo financing, central bank foreign exchange reserves – at the bottom of all these chains lie US Treasuries.

When the ballast's price fluctuates violently, the whole ship rocks.

In 2023, Silicon Valley Bank collapsed because the trigger was the unrealized losses on its Treasury holdings. If long-term yields above 5% become the new normal, who will be the next to appear above water?

There is no standard answer to this question. But as an investor, you should at least ask yourself one more question when looking at your asset allocation:

Are the valuation models for my assets still assuming zero interest rates?

If so, please recalculate.

The waterline has already changed.