G7 sovereign bond yields rose again early Tuesday. “The beatings will continue until morale improves,” as the saying goes.

A day on from breaching 5% for the first time since the October 23, 2023, cycle high, 10-year US yields pushed through that session’s peak. 5.04% marked a new post-2007 high for the benchmark off which nearly everything in the world’s priced, in one way or another.

Oil’s in the driver’s seat: Brent continued to flirt with $110 on Tuesday, as the Houthis boasted of new attacks on Saudi military installations. The group’s also “digging into” newly-captured positions along the Red Sea, sources told Reuters.

The linked article described “urgent deliberations in Riyadh,” where the monarchy’s struggling to respond to the Houthis’ “lightning advance,” which saw the group seize two key coastal towns and a strategic island in the Bab al-Mandab Strait last week.

As for the Strait of Hormuz, Oman canceled a planned with meeting with Iran and other Gulf states at Riyadh’s request.

While it’s probably fair to describe triple-digit crude as the proximate cause of the latest leg higher for G7 yields, fiscal concerns are absolutely playing a role. In the US context, shifts in the buyer base toward price-sensitive investors and away from official-sector sources of demand are likewise a factor.

It seems at least as likely as not that Scott Bessent will bring forward an announcement on coupon auction size cuts to the next QRA. That’d be far more effective than his buyback gimmickry, even as it won’t do anything to address fiscal indiscipline concerns.

They say misery loves company, and Scott’s got plenty of company. As BMO’s Ian Lyngen and Vail Hartman pointed out, the average G7 10-year yield is now above 4% for the first time since 2008.

The figure below shows you US 10s along with the G7 average and the range.

“The global bearishness signals a collective rethink of fair value across major sovereign debt markets,” Lyngen and Hartman wrote. “In the US, it strikes us that the market remains in price-discovery mode as it pertains to how high nominal yields can increase before investors become more meaningfully concerned about the fallout for the real economy with the data not yet showing any compelling signs of strain.”

In the UK, the only G7 country where benchmark yields are higher than they are in the US, Treasury and the BoE are in discussions to tweak the latter’s QT program in an effort to relieve pressure at the long-end of the curve.

The Daily Telegraph said Tuesday that the BoE could halt runoff of long-dated gilts when it announces its QT plan for the next 12 months later this week. The bank’s QE portfolio is down to £490 billion now, around £150 billion of which is long-end, 20-year-and-out bonds. As the linked article notes, the BoE’s selling those at an average discount of around 50pc, resulting in a cumulative loss that exceeds £20 billion since 2022.

“Under the [new] plan, active bond sales will continue, but they will exclude long-term debt,” the Telegraph said, adding the BoE may also stop selling directly to investors and instead offload short- and medium-dated bonds “directly to the Treasury’s DMO to help manage the extra debt supply.”

Liz Truss mocked the plan in a conspiratorial social media message. “So the Bank of England are now planning to stop QT to relieve the Labour Government’s debt crisis,” she wrote. “Remember they started QT the day before [my] mini-budget. The so-called ‘independent’ Bank of England.”