‘…bond markets are continuing to function in an orderly manner’ — this was the IMF’s reading of global bond markets last week, even as yields were surging across major economies. Economist and Allianz Chief Economic Advisor Dr Mohamed El-Erian described the IMF’s comment as ‘highly unusual’ and said it ‘risks raising more questions than it answers’ on X.
The bond market rout, which has been unabated since the beginning of the US-Iran war, continued its momentum into the week gone by. Sovereign yields of all top 10 global economies surged during the week, except for those of Germany, while China’s and Canada’s were flat. However, on a year-to-date basis, Germany and Canada too, join the rest in exhibiting a pattern of substantially higher yields now. Only China has bucked this trend.
The week was so chaotic that the CDS spread on French government bonds climbed about 30 bps in just a week to a 13-year high. Some experts are pointing that France could be the next Greece in the making. In fact, German bonds rallying in the second half of the week may largely have to do with investors rotating their French bond positions into German. Across the Atlantic, yields on the US’ 10- and 30-year Treasuries hit 24-year peaks, while the US bond market is in its longest drawdowns in the past 50 years. There were also instances during the week when bond yields hardened even as crude oil prices cooled — signalling more structural factors at play.
While we had already warned of the likely implications of such a bond market for equities in our article ‘US bond turmoil signals rising global macro pressures’ in the same space in our edition dated August 23, 2026, last week’s moves reveal that the problem is compounding.
Corporate yields up
As one would naturally expect, the rout has extended to the corporate bond market as well. US-listed long-term corporate bond ETFs namely VCLT, IGLB and SPLB which have an effective duration of around 12 years are down about 8.5 per cent since their 2026 highs in mid-February. The yield-to-maturity (YTM) on these ETFs is currently between 6.2 and 6.6 per cent. Speaking of individual corporate bonds, those of top-rated US tech mega caps currently offer YTMs between 5.4 and 6.2 per cent, for 10-year maturities — in other words, at a spread of 10-90 bps over the 10-year Treasury (see graphic). Yields are even higher for 20- and 30-year maturities.
Some of them are only recent issues and the difference between the coupon at issue and the current yield is staggering. For instance, Nvidia’s 10-year bond issued in June this year at 4.95 per cent coupon, yields 5.98 per cent currently — a rise of 103 bps in about three months. Meta’s 10-year bond issued in May at 5.25 per cent currently carries a YTM of 6.18 per cent. Further down the rating spectrum, Oracle’s 10-year bond issued in February at 5.7 per cent, currently yields 7.48 per cent. The company’s investment grade rating of BBB- is just one rung above junk status. One more downgrade could mean yields climb further, as investors such as pension funds that may invest only in investment-grade securities, offload their Oracle holdings.
TINA to TAMA
That said, what does this situation leave investors in India with? US’ Treasuries, considered among the safest and most liquid assets in the world are now yielding 5.3 per cent for 10-year maturities. Now add rupee depreciation of 3.6 per cent (based on mean 10-year rolling returns over the last 25 years), investors get an investment yielding 8.9 per cent per annum, going by this assumption. One could choose a highly rated mega cap corporate’s bond or one of the corporate bond ETFs for that extra spread. Returns in that case could work out to 9-10 per cent annually, going by the same rupee depreciation assumption. This is even before factoring in possible gains from capital appreciation of underlying bonds, if one were to be open to take opportunistic calls.
Stacking this up against Nifty’s returns of 12.1 per cent, based on mean 10-year rolling returns over the last 15 years, investors now have what could be viewed as a compelling alternative in US Treasuries. With any further spike in yields, US Treasuries could turn out to be instruments offering equity-like returns, without the downside risk and volatility associated with equities. In such an event, even the 13.5 per cent return of the index’s total-return twin may not be enough to decisively tilt the scales in its favour.
Ten years ago, when the US 10-year yield was under 2 per cent, this math may not have been this hard to digest. Gone are the days when bonds were competition for bonds themselves. It’s time to adapt to an era in which bonds could increasingly compete with equities for investor allocations.
From ABB (anything but bonds), yield spikes are now offering investors BBB (bonding with the best bonds). From TINA (there is no alternative (to equities)), times have now changed to TAMA (there are many alternatives).
Also read: Hero or Hiroo: The real message from the bond tantrums
Published on October 3, 2026
