Market Sentiment Tracker: Are we due for a bond market accident?

Ten-year Treasury yields brushed 4.75% last week, a level unseen since 2007. Japan's benchmark bond just hit its highest since 1996. UK 30-year gilts are sitting at their highest since 1998. France's OAT-Bund spread has cleared 80 basis points, matching the euro debt crisis. Four unrelated economies, four different local stories, and the chart looks identical everywhere: yields climbing steadily, month after month, with no single event that explains all of it. When that happens across borders, the local headlines aren't the cause — they're the excuse markets use to reprice something bigger.

The US driver is fiscal: AI-linked firms have issued roughly $1.5 trillion in bonds this year, crowding the same buyer base Treasury needs, while year-ahead inflation expectations have sat above 4% for five straight months. Japan's is monetary — the BOJ looks set to hike in September after decades near zero, pushing five-year JGB yields to a record high even as GDP grew at barely half the forecast pace. France and the UK are both political — punished for budgets that struggle to clear their own legislatures. Different mechanisms, same direction, and that convergence is the real story.

Three precedents put the current move in perspective. In 1994, the Fed doubled the fed funds rate in a year and 30-year Treasury yields ran from 6.2% to nearly 8%, wiping out over $600 billion in bond value and forcing Orange County into the largest municipal bankruptcy in US history at the time. In the 2013 taper tantrum, the 10-year ran from 1.6% to 3% in four months after Bernanke merely floated tapering, and the "Fragile Five" emerging-market currencies fell an average of 6% against the dollar in the scramble. In September 2022, UK 30-year gilts jumped 150 basis points in four trading days after Truss's mini-budget, forcing pension funds running leveraged LDI strategies into margin calls that triggered further forced selling until the Bank of England intervened with emergency gilt purchases. Three episodes, one thread: the damage landed wherever leverage was concentrated, and it landed fast — days or weeks, not months.

That's the detail this cycle is missing so far. The current climb has taken months to cover ground that 2022 covered in a week, and the pacing is doing more work than any single fundamental. A slow repricing gives leveraged positions time to unwind quietly instead of being margin-called into a fire sale — which is the actual mechanism that turns a rate move into a crisis, not the yield level by itself.

Three numbers back that up, and they're the ones worth paying attention to. US money market fund assets hit a record $7.93 trillion this month — dry powder that didn't exist at this scale in 1994 or 2022, sitting ready to buy any dip and dampen the kind of self-reinforcing selloff that broke UK pensions. Roughly four out of five US homeowners with a mortgage are locked in below 6%, well under today's market rate — so rising yields aren't transmitting into household cash flow the way they hit adjustable-rate borrowers in 1994. And the rolling correlation between US stocks and bonds has held at just 0.11 since the start of 2025, barely positive, against 0.66 in 2022 — meaning bonds are still functioning as a hedge for equity portfolios even as bond yields climb, which is part of why the S&P has kept setting record closes through this entire run-up.

None of that is a permanent exemption. Consumer sentiment just posted its sharpest monthly drop of the year, per the University of Michigan survey, and August through October is historically the weakest stretch for US equities. France hasn't fixed its budget arithmetic, Japan hasn't finished unwinding four decades of near-zero rates, and gilts are one weak auction away from testing 2022 nerves again — the correlation regime that's cushioning stocks today can flip the way it did that September, and it can flip fast.

The lesson from every precedent above isn't that rising yields are harmless. It's that the damage shows up wherever leverage is concentrated, not wherever the yield number looks alarming. Right now, the leverage isn't visible in the usual places — money funds are flush, mortgage debt is locked in, stock-bond correlation is still low. That either means this cycle built in more shock absorbers than the last one, or the crowded trade simply hasn't been found yet. Watch the correlation number. If it starts climbing back toward 2022 territory, that's the tell that the cushion is gone before the headlines catch up.