(Bloomberg Opinion) -- With the 10-year Treasury yield breaching 2% after this week's higher-than-expected U.S. inflation numbers, bond traders are rightly feeling bruised and battered. The bad news is, there's probably more pain in store in the fixed-income market. But the good news is that governments and companies are still able to benefit from borrowing costs that are way below their historical levels.
Around the world, consumer prices have been accelerating at a pace that is anything but transitory. January's 7.5% climb in U.S. inflation was faster than the 7.3% anticipated by economists. In the euro zone, the record 5.1% print has prompted the European Central Bank to drop its commitment not to raise interest rates this year. And surging consumer prices in the U.K. have prompted the Bank of England to increase its official rate at its previous two meetings.
In the fixed income markets, traders and investors have recalibrated their expectations for how high yields need to be to accommodate the changing environment. The 10-year U.S. government bond yield has doubled since the start of last year, reaching its highest level since August 2019. The consensus forecast among analysts surveyed by Bloomberg News is that the benchmark will continue to head higher in the coming months.
That market reaction is echoed around the world. Global bonds, as measured by the Bloomberg Global Aggregate Index of more than $60 trillion of investment-grade debt, have lost value for six consecutive months. Their total return in January was -3.51%, the worst outcome since the start of the pandemic.
Zoom out from the short-term yield chart, however, and the picture looks a lot less bleak. The average cost of borrowing for a decade among the nations in the Group of Seven has more than tripled in the past year, rising to 1.2%. But that's still way below the average since the start of 2000 of about 2.7%, and less than the 1.8% level seen as recently as 2018.
For any fixed-income traders nursing losses after being taken in by the central bank mantra that inflation would prove to be transitory, there's little relief in sight as the guardians of financial stability look set to overshoot by draining the monetary punchbowl as rapidly as they can. For borrowers needing to tap the debt markets, there's no time like the present.
More from Bloomberg Opinion:
The Bond Market Can Finally Do Its Job Again: Marcus Ashworth
Have Bond Investors Gone Completely Insane?: Robert Burgess
Hedge Funds and the Art of `Phony Happiness': Marc Rubinstein
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."
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