Global Rates & FX Views: Global bond selloff & credit impact

Global bond markets are experiencing a significant selloff driven primarily by a surge in term premium rather than central bank policy expectations. While investors view fiscal consolidation as the most credible path to stabilizing long-end rates, such policy shifts remain elusive in the current political environment. Credit markets, despite recent widening, remain historically tight, with weakness attributed to macro-volatility rather than deteriorating fundamentals. Corporate balance sheets currently demonstrate resilience, often trading richer than sovereign debt, as firms maintain better control over growth than cash-strapped governments. Market stability hinges on either a reduction in rate volatility or the realization of AI-driven profit growth, which currently supports equity and credit valuations despite rising yields. Investors remain cautious, monitoring Treasury supply dynamics and the potential for further rate shocks to impact credit spreads.