Financial watchdog warns G20 of rising bond volatility

Andrew Bailey, who chairs the Financial Stability Board, has warned G20 finance ministers and central bank governors about "heightened volatility in sovereign bond markets." His letter came on Monday, Oct. 12, three days before the group meets in Bangkok on Oct. 15. In the letter, Bailey, who is also governor of the Bank of England, calls for "continued vigilance." He names weaknesses in private credit markets and risks from artificial intelligence as other main threats to the global financial system.infobae+1

The warning comes during a global selloff in government debt. Rising public debt, the cost of refinancing it, and central banks shrinking their bond holdings are all making investors more worried about how much governments pay to borrow.

Stablecoins and bond reserves

The letter came with a note on stablecoins. The note links them to the turbulence in sovereign debt, according to the Spanish news agency EFE. The FSB says stablecoins were worth about $300 billion in mid-2026, and 99% of that value is tied to the dollar. It warned that in a period of stress, a run on a stablecoin could force issuers to sell reserve assets such as U.S. Treasuries and could spread to banks as deposits are pulled. The board urged the G20 to watch cross-border stablecoin flows more closely and share more information.infobae

This is the third straight letter in which Bailey has flagged sovereign debt. In April he named sovereign bond markets as a key area to monitor after the Middle East conflict. In August he pointed to fragile debt markets caused by heavy issuance, shorter maturities and more leverage among some traders.fsb+1

Yields at multi-decade highs

The benchmark 10-year U.S. Treasury yield rose to about 5.36% in the week of Oct. 5-9, its highest in almost 24 years. Britain's 10-year gilt yield hit 5.527%, the highest since 2007, and French yields stayed near multi-decade highs, according to China's state news agency Xinhua. International Monetary Fund head Kristalina Georgieva said in Singapore that global public debt is nearing levels last seen after World War II and will soon pass 100% of world GDP.bignewsnetwork+1

The Institute of International Finance estimates that advanced economies now pay more than $3.3 trillion a year to service their bonds. That cost has risen as G7 central banks have reduced their bond holdings by about a third since early 2022, Reuters columnist Mike Dolan wrote. Hedge funds have filled much of the gap. Carlyle strategist Jason Thomas said these buyers have left bond markets "more fragile and sensitized to front-end repricing."bdnews24

Pressure on central banks

Governments may push central banks to step back into bond markets. Georgieva has warned them not to. She urged rich countries to deliver credible plans to cut deficits instead of relying on what she called "monetary cowboys" to bail them out.

> "My message is: please don't."bdnews24