Global Bond Market Sell-Off: Are We at Another Inflection Point?

Article by Xiao Bing, Shenchao TechFlow

On May 19, during trading, the U.S. 30-year Treasury yield surged to 5.177%, reaching its highest level since August 2007.

The last time the 30-year U.S. Treasury coupon was officially issued at 5% was in August 2007. Two months later, two hedge funds managed by Bear Stearns collapsed, marking the beginning of the subprime crisis. This isn’t to say history always rhymes, but when the world’s largest, deepest, and most widely regarded “risk-free” market pushes yields back to levels seen just before the financial tsunami, it’s wise to understand exactly what’s happening.

Worse still, this time it’s not just the United States.

If it were only U.S. Treasury yields rising, the story would be simple: the market expects higher inflation and anticipates Fed rate hikes—that’s all.

But what happened over the past week is on an entirely different scale.

From May 15 to 18, the long-term government bond yields of major developed countries worldwide experienced a rare "simultaneous surge":

Japan's 30-year government bond yield surpassed 4%, reaching a record high since the bond's issuance in 1999; the UK's 30-year gilt yield rose to its highest level since March 1998; Germany's 10-year government bond yield hit its highest point since May 2011.

If you overlay these charts, you’ll see a chilling sight: bond traders in Tokyo, London, Frankfurt, and New York—all in the same week—made the same decision: to sell.

According to Bloomberg, this was the worst week for U.S. Treasuries since Trump’s tariff shock in April 2025, with the 30-year U.S. Treasury yield nearing its 2023 cycle high.

Bond traders are the most conservative group on this planet. When they begin selling in unison, the market doesn't just sense panic—it senses that something structural is beginning to unravel.

Lay all the clues on the table, with three main threads intertwined:

The first line is oil.

In late February, the war between the U.S. and Iran broke out, and tensions in the Strait of Hormuz have persisted for nearly three months. In April, the U.S. CPI hit a three-year high, while the PPI recorded its largest year-over-year increase since early 2022, rising by 6%. This is not a mild return of inflation—it is a clear second shock.

Bondholders' logic is straightforward: if inflation can't be controlled over the next five years, locking in a fixed coupon for 30 years means losing purchasing power with each additional year held. So they either sell, or pressure the issuer to offer a higher coupon to compensate.

That’s why this round of selling has been concentrated in long-term bonds—10-year, 20-year, and 30-year. The longer the maturity, the more sensitive it is to inflation.

The second line is debt.

The U.S. government’s fiscal deficit continues to expand, requiring the Treasury to issue more debt. Both the 3-year and 10-year Treasury auctions experienced demand below expectations, indicating that investors’ capacity to absorb the growing supply of U.S. bonds is being tested as yields continue to rise.

Supply is increasing, while demand is shrinking. Central banks abroad—particularly the largest buyers of U.S. Treasuries over the past two decades—are reducing their holdings. This is a critical shift: U.S. Treasuries are no longer automatically finding buyers.

Japan faces a similar situation. Markets are concerned that the Japanese government may need to introduce additional budgets to address economic pressures, further worsening deficit expectations. The UK’s troubles are more direct: Prime Minister Starmer’s political crisis has further shaken market confidence in the UK’s fiscal discipline, pushing the yield on 30-year gilts to a 28-year high.

The third line is the central bank's "credit issue."

This is the most subtle layer.

The Federal Reserve maintained interest rates in the range of 3.5%-3.75% at its most recent policy meeting. Surprisingly, there was internal dissent, with three of the twelve voting members publicly opposing the dovish wording in the statement. This hawkish dissent was interpreted by markets as a warning to the incoming chair, Walsh: don’t expect easy rate cuts.

The interest rate futures market has pushed the probability of a rate hike in December to 44%, whereas at the beginning of the year, the market widely expected at least two rate cuts.

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

Many people don’t feel a connection to “U.S. Treasury yields.” But how does it relate to your life, your assets, or the Bitcoin in your account?

For example.

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

When the water level rises, everything has to be recalculated.

Here’s a concrete example: You hold a tech growth stock that the market was previously willing to value at 30 times earnings, because investors believed in its cash flow potential over the next decade. But now, 30-year Treasury bonds offer a 5% “risk-free” return—meaning the same amount of money invested in bonds for 30 years could return more than double the principal. Why take the risk of assigning a 30x valuation to an uncertain tech company when you can get a guaranteed return with no risk?

Therefore, the valuation must be lowered.

Similarly for mortgages. In the U.S., 30-year fixed mortgage rates essentially follow the 10-year Treasury yield; a 10-year yield breaking 4.6% means new mortgage applicants could face rates above 7%. This is why, if 30-year Treasury yields continue rising above 5%, the pressure may extend beyond the bond market to real estate, small-cap stocks, high-valuation growth stocks, and any other sectors reliant on long-term funding to maintain low costs.

As for gold and Bitcoin, their common characteristic is that they do not generate cash flow.

In a zero-interest-rate environment, this wasn't an issue because your counterparty was holding government bonds yielding 0.5%. But now that the counterparty is holding bonds yielding 5%, everything has changed.

Over the past three weeks, Bitcoin’s performance has perfectly illustrated the concept of “macro counterparty.”

During the week that the 10-year U.S. Treasury yield broke 4.5% and the 30-year yield approached 5.1%, U.S. Bitcoin spot ETFs experienced approximately $700 million in net outflows.

Bitcoin price fell back below $80,000 after trading above $82,000. On the same day, May 19, when the 30-year U.S. Treasury yield surged to 5.18%, Bitcoin, altcoins, and other risk assets came under pressure.

The logic chain is simple:

Institutional investors face a very specific arithmetic problem: putting $1 million into 30-year U.S. Treasuries guarantees a steady $50,000 annual return over the next three decades, with the principal repaid in full at maturity—nearly zero risk. Putting the same amount into Bitcoin, however, is a bet that it will outperform this 5% compound return.

The danger of compound interest is that 5% over 30 years amounts to a 4.3x return. That means Bitcoin must outperform a 4.3x gain over 30 years just to break even on this opportunity cost. Sounds easy? But only if you can withstand any drawdown of more than 50% along the way.

This is why the logic of capital rotation continues to exert pressure on non-yielding assets: “Every dollar placed in Bitcoin is a dollar not earning that 5% return.”

Returning to the number 5.18%.

Many analysts interpret this as "short-term tightening pressure," but I don't quite agree.

If you take a longer-term view, the greatest macro backdrop for global asset prices over the past four decades has been the long-term decline in interest rates. In 1981, the U.S. 10-year Treasury yield was 15%; by 2020, it had fallen to 0.5%. Over those entire 40 years, the water level steadily sank. Every “value investing logic,” every “60/40 portfolio,” every “tech stock valuation model,” and even the narrative of whether Bitcoin could become “digital gold,” were all built upon this long-term trend.

The issue now is that this 40-year downward trend may have already ended in 2020.

What we are witnessing is the early stage of the water level beginning to rise in reverse.

“The market is beginning to price in the possibility that the Fed will have to work harder to curb inflation,” said Ed Al-Hussainy, portfolio manager at Columbia Asset Management. This sell-off reflects not only concerns about the inflation trajectory but also the economy accelerating.

If his assessment is correct, 5.18% is not the end, but the beginning of a new range.

A deeper issue is debt.

The U.S. federal debt has approached $37 trillion. Every one-percentage-point increase in interest rates means the U.S. Treasury must pay hundreds of billions of additional dollars in interest annually. When interest payments exceed defense spending, exceed healthcare expenditures, and ultimately consume everything, the market will force the government to either drastically cut spending or monetize the debt.

Throughout history, every major debt cycle has ended in one of two ways.

U.S. Treasuries are called the "anchor" because they serve as the foundational collateral for the global financial system. At the base of every chain—bank capital adequacy ratios, insurer solvency, pension fund duration matching, hedge fund repurchase financing, and central banks' foreign exchange reserves—lies U.S. Treasuries.

When the price of the anchor stone fluctuates sharply, the entire ship shakes.

In 2023, the collapse of Silicon Valley Bank was triggered by unrealized losses on its U.S. Treasury holdings. If long-term bond yields above 5% become the norm, who will be the next to surface?

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

Does the valuation model for these assets I hold still assume zero interest rates?

If so, please recalculate.

The water level has changed.