Global bond market sell-off impacting risky assets, US bond yields surpassing 4.5%, technology stocks leading the decline in US stocks.

The global bond market experienced fierce selling this week, starting to impact the previously thriving risk asset markets. On Friday, the three major U.S. stock indexes fell significantly, with tech stocks becoming a major area of selling. The S&P 500 index dropped more than 1.2%, and the yield on the 10-year U.S. Treasury bond broke 4.5%, causing concerns in the market about the duration of a high-interest rate environment. At the same time, the yield on Japan's 30-year government bonds rose above 4% for the first time in history, and the yield on long-term UK government bonds reached the highest level in 28 years. International oil prices continued to rise, with Brent crude oil prices exceeding $105 per barrel. In the past few months, the market has repeatedly ignored risks such as escalating conflicts in the Middle East, rebounding inflation, and supply chain disruptions, with U.S. stocks continuing to hit record highs, corporate bond credit spreads remaining low, and high-risk trades like AI concept stocks and cryptocurrencies still being favored by retail investors. However, this week, the situation began to change. With the U.S. announcing higher-than-expected inflation data, long-term bond yields rose rapidly, leading the market to reassess the risks that the Federal Reserve may not only be unable to cut interest rates in the future but may even tighten its policies further. Priya Misra, portfolio manager at Morgan Asset Management, stated: "After the 10-year U.S. bond yield broke the psychological barrier of 4.5%, risks are starting to become dangerous, affecting not only the bond market but also the entire risk asset system." She pointed out that as financial conditions continue to tighten, the market focus is gradually shifting from "simply inflation" to "stagflation risk." Despite the correction on Friday, U.S. stocks had been rising for seven consecutive weeks. However, the internal structure of the market showed signs of fatigue. Data shows that out of the 11 sectors in the S&P 500 index, eight had recorded declines this month, with most gains concentrated in the technology sector. Meanwhile, even as bond yields soared, investment-grade and high-yield bond credit spreads remained stable, mainly supported by strong corporate profits and robust demand in the primary market. Analysts pointed out that what truly made the market nervous this week was not just the rise in bond yields, but the "global synchronous rise." The yield on UK 30-year government bonds rose temporarily above 5.8%, reaching a new high since 1998, sparking market concerns that UK Prime Minister Johnson may face challenges within his party. Meanwhile, the yields on Japanese, German, Spanish, and Australian government bonds also rose in sync. Emmanuel Cau, head of European stock strategy at Barclays, stated: "The reacceleration of inflation is intensifying the already fragile pressure on bond markets." He believed that the political risk in the UK is raising the risk premium on UK government bonds, and this pressure has started to spread to global developed market bonds. Meanwhile, more and more Wall Street institutions are beginning to worry about the impact of high-interest rates on stock market valuations. Lori Calvasina, capital markets strategist at Royal Bank of Canada, warned that if the yield on the 10-year U.S. Treasury reaches 5%, there could be significant compression in stock market valuations. Bank of America had previously stated that the 5% yield on 30-year U.S. Treasury bonds was a key threshold for the market, and if long-term rates continue to rise, it could put greater pressure on stock market risk appetite. However, the bullish sentiment in the market remains confident in the AI trend. Steve Chiavarone, deputy chief investment officer at Federated Hermes, believed that the bond market and AI stocks actually reflect logic from different timeframes. He stated that the rise in oil prices and bond yields reflects supply shortages and sticky inflation in the next 3 to 6 months, while AI stocks are betting on productivity improvement and inflation decline in the next 1 to 3 years. Chiavarone said that the current upward revision of corporate profits is the strongest he has seen in the past 20 years and believes that stocks are still a better hedge against inflation than bonds, cash, or even precious metals. However, the bears are worried that the current market logic is difficult to coexist in the long term. Gene Goldman, chief investment officer at Cetera Financial Group, said: "These asset classes are all telling their own reasonable stories, but they are not telling the same story." He believed that ultimately either stock market valuations will be forced to be lowered, or the bond market will have to reassess how tight the Federal Reserve policy actually needs to be.