Long-term government bond yields are currently rising, with the 30-year gilt yielding 5.7% and the 30-year US Treasury at 5.2%. This upward trend in yields is largely driven by institutional investors becoming less keen on holding these assets.
The primary concern among investors is that persistent high government deficits will necessitate substantial bond issuance for many years to come. An increase in bond supply relative to demand typically leads to lower bond prices and higher yields.
Despite these developments, the bond market does not appear to be signalling a consensus for structurally higher inflation. Inflation breakevens, which measure the difference between nominal and inflation-linked bond yields, are stable. For instance, the 20-year US breakeven is at 2.4% and the 30-year at 2.2%, both near the bottom of their range over the last five years.