Global bonds overview - part.1

In the past two weeks, global government bond markets have experienced significant developments, influenced by central bank policies, fiscal measures, and geopolitical factors. In the United States, the Federal Reserve's dovish stance has led to a flattening of the Treasury yield curve, with expectations of a 25 basis point rate cut by December. In the United Kingdom, 30-year gilt yields surged to 5.61%, their highest since 1998, driven by inflation concerns and fiscal pressures ahead of Chancellor Rachel Reeves's autumn budget. Meanwhile, in France, the announcement of a confidence vote by Prime Minister François Bayrou has led to a spike in 10-year bond yields, reflecting investor concerns over political instability and fiscal policy direction. In India, the yield on 5-year government bonds has risen to 6.29%, primarily due to fears of a widening fiscal deficit and concerns over the impact of proposed GST rate cuts.

Turning to China, the government bond market has seen mixed signals. On one hand, the People's Bank of China (PBOC) has ramped up its medium-term liquidity operations, delivering the biggest monthly net injection in the past six months, aiming to maintain ample liquidity in the banking system. On the other hand, the yield on China's 5-year government bonds eased to 1.63% on August 21, 2025, indicating investor caution amid economic uncertainties. Additionally, China has reinstated a value-added tax (VAT) on interest income from newly issued government and financial institution bonds, effective August 8, 2025, ending a longstanding tax exemption aimed at supporting bond market growth. This move is intended to alleviate fiscal strain as the country's deficit and government bond interest payments continue to rise.

In Russia, the government bond market reflects the country's fiscal challenges amid ongoing geopolitical tensions. The yield on Russia's 5-year government bonds rose to 13.65% on August 21, 2025, marking a 0.16 percentage point increase from the previous session. This rise in yields is attributed to the government's preparations for significant austerity measures, including tax hikes and cuts to non-defense spending, to address a growing budget deficit exacerbated by declining oil and gas revenues. Defense and security spending in 2025 is projected at 17 trillion roubles, 41% of total expenditures, the highest since the Cold War. Officials expect this level to persist into 2026, possibly decreasing only if hostilities subside by 2027.