Drivers of Recent Bond Volatility

Recent volatility in global bond markets has been driven by a combination of factors, including shifts in growth and inflation expectations, as well as adjustments in monetary policy outlooks. Key changes have occurred since September, with US yields climbing about 100 basis points at the 10-year mark due to improved economic data and a revised Federal Reserve stance on inflation. As the labor market showed unexpected resilience, investor sentiment shifted towards stronger growth projections, prompting a demand for higher bond risk premium amid concerns over increased sovereign bond supply. This resulted not only in rising yields across major markets but also an increase in perceived risks, leading to a reevaluation of the relationship between inflation, growth, and policy direction.