Government Bonds Still "Dragging Their Feet"

However, due to rising fiscal risks, long-term government bonds in some regions continue to face pressure. In fact, although the global bond market has technically entered a new bull market by standard definition, this does not signify a recovery of confidence in sovereign debt—if anything, it might be quite the opposite.

The Bloomberg Global Aggregate Bond Index is primarily composed of sovereign bonds, corporate bonds, and securitized debt. In the current rally, global corporate bonds have significantly outperformed other types of bonds.

Anxiety over sovereign debt is particularly concentrated in markets such as France—Prime Minister Gabriel Attal formally submitted his resignation to President Emmanuel Macron on the 9th, after his government failed to pass a confidence vote in the National Assembly with 194 votes in favor and 364 against. This marks the fourth French prime minister to step down within two years.

In the UK, investors are awaiting Chancellor Rachel Reeves' plan, to be released in November, on how to balance growth initiatives with spending constraints. Last week, the yield on UK 30-year government bonds hit a high of 5.75%, the highest since 1998, before retreating to around 5.47%.

In Japan, the resignation of Prime Minister Yoshihiko Noda over the weekend has heightened uncertainty, with his successor widely regarded by the industry as potentially lacking commitment to fiscal discipline. The yield on Japan’s 30-year government bonds has continued to hover near historical highs this week.

In contrast, for corporate bonds, the Bloomberg Index shows that the yield on global investment-grade bonds has fallen for four consecutive days, dropping to 4.26% on Monday, a new low since August 2022.

Ben Hayward, CEO of TwentyFour Asset Management, noted that although government debt levels have sparked some tension, investors generally remain optimistic about the current buying opportunity in the bond market. A recent survey by the firm showed that 80% of institutional investors agree that bonds are attractive in cross-asset allocations at current yield levels.

"Higher yields enhance potential returns while providing volatility protection for portfolios," Hayward said. "Therefore, it is not surprising that investors are increasing their fixed-income allocations across the board."