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

Author: Xiaobing, Deep Tide TechFlow

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

The last time a 30-year Treasury bond was formally issued with a 5% coupon was also 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 must rhyme, but when the world's largest, deepest, and so-called "risk-free" market pushes yields back to levels seen on the eve of the financial tsunami, you'd better understand what's really happening.

More critically, this isn't just about the US.

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

If it were only US Treasury yields rising, the story would be simple – the market pricing in inflation and expecting the Fed to hike rates, that's all.

But what happened over the past week is a completely different magnitude.

From May 15th to 18th, 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 first issued in 1999; the UK's 30-year gilt yield soared 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 Trump tariff shock in April 2025, with the 30-year yield approaching the cyclical peak of 2023.

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

What Simultaneously Hit Global Bond Markets?

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

The first thread is oil.

The US-Iran war kicked off at the end of February, and tensions in the Strait of Hormuz have persisted for nearly three months. April's US CPI hit a three-year high year-on-year, and PPI recorded its largest increase since early 2022, at 6% year-on-year. This isn't a mild return of inflation; it's a clear secondary shock.

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

That's why this sell-off is concentrated in long-duration bonds – 10-year, 20-year, 30-year. The longer the maturity, the more sensitive to inflation.

The second thread is debt.

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

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

Japan faces a similar situation. The market worries that the Japanese government may need to introduce an additional budget to cope with economic pressures, worsening deficit expectations. The UK's troubles are more direct: Prime Minister Starmer's political crisis further shakes market confidence in UK fiscal discipline, pushing the 30-year gilt yield to a 28-year high.

The third thread is the central bank's "credibility problem."

This is the most subtle layer.

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

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

A 180-degree reversal in expectations, occurring in less than five months.

What Does 5% Mean?

Many people don't feel much about "US Treasury yields." What does it have to do with your life, your assets, or the Bitcoin in your account?

Let's use an analogy.

The 30-year Treasury yield can be understood as the "waterline" for global asset pricing. It's the closest thing to a "risk-free" long-term return rate 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 must be recalculated.

A concrete example: You hold a tech growth stock. The market was willing to give it a 30x P/E ratio because everyone believed in its cash flows over the next ten years. But now a 30-year Treasury can give you a "risk-free" 5% return. If you put the same money in bonds, you'd get back more than double the principal in 30 years. Why take the risk of giving an uncertain tech company a 30x valuation?

So, valuations must come down.

The same applies to mortgages. The US 30-year fixed mortgage rate essentially follows the 10-year Treasury. 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 may not be limited to the bond market but could spill over into real estate, small-cap stocks, high-valuation growth stocks, and any other sector reliant on long-term cheap capital.

As for gold and Bitcoin, their common characteristic is that they generate no cash flow.

In a zero-interest-rate era, this wasn't a problem because your counterparty was a Treasury yielding 0.5%. But now the counterparty has become a Treasury yielding 5%, and things are completely different.

Over the past three weeks, Bitcoin's performance has vividly illustrated the concept of "macro counterparty."

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

The price of Bitcoin fell from above $82,000 to below $80,000. On May 19th, the same day the 30-year Treasury yield surged to 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, and you get $50,000 a year for the next thirty years, with principal returned at maturity – nearly zero risk. Put the same money into Bitcoin, and you're betting it can beat that 5% compound interest.

The scary thing about compound interest is that 5% over thirty years multiplies to 4.3 times the principal. That means Bitcoin must outperform by 4.3 times over 30 years just to "break even" on this opportunity cost. Sounds easy? But only if you can withstand any drawdown of 50% or more along the way.

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

What's Truly Worth Watching is Something Else

Let's return to the number 5.18% itself.

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

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

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

And what we are witnessing is the early stage of the waterline beginning to rise in reverse.

"The market is starting to price in the possibility that the Fed will have to work harder to suppress inflation," said Ed Al-Hussainy, a portfolio manager at Columbia Asset Management. This sell-off reflects not only concerning inflation paths but also an accelerating economy itself.

If his judgment is correct, then 5.18% is not the endpoint, but the starting point of a new range.

A deeper issue 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 more in interest each year. When interest payments exceed defense budgets, exceed healthcare spending, and ultimately eat into everything else,the market will force the government to either drastically cut spending or monetize the debt.

Historically, every major debt cycle has ended in one of these two ways.

US Treasuries are called "ballast" because they are 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 base of all these chains are Treasuries.

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

Silicon Valley Bank collapsed in 2023, triggered by unrealized losses on its Treasury holdings. If long-term yields above 5% become the new normal, who will be next to be exposed?

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 the assets I hold still assuming zero interest rates?

If so, please recalculate.

The waterline has already changed.