Global bond yields are experiencing a surge in May 2025, driven by concerns over government deficits and persistent inflation, impacting equity markets worldwide. On May 22, rising yields triggered sell-offs across Wall Street and Asian markets, fueled by risk-averse investors seeking safer returns.
The U.S. 30-year Treasury yield reached 5.08%, while Japan's 40-year bond yield touched 3.635%. These increases are attributed to potential widening of the federal deficit due to government spending and tax policies, as well as global inflation concerns.
The Dow Jones Industrial Average fell 1.91%, the S&P 500 slid 1.61%, and the Nasdaq Composite declined 1.41% on May 21. Asian markets also experienced declines, with Japan's Nikkei 225 closing at 36,985.87, down 0.84%, and Hong Kong's Hang Seng index decreasing by 0.33% to 23,748. Central banks' elevated benchmark rates globally, combined with tariff-related uncertainties, are contributing to inflation concerns. Investors are demanding higher risk premiums for long-dated debt, exposing fiscal vulnerabilities. Rising bond yields pose a threat to equity valuations, offering more competitive risk-weighted returns for investors.