September proved to be the worst month of the year for the global bond market

MUMBAI: The global bond market has taken a hit after the world's central banks signaled a rise in interest rates. The bond market has seen its sharpest decline this year on fears of rising interest rates at the start of the new year.

Investors sold government bonds in the wake of recent lending by the US Federal Reserve and the Bank of England last week, with both countries' central banks showing readiness to resist rising inflationary pressures by raising short-term borrowing costs.

The recent rise in energy prices in Europe, especially in the UK, has strengthened fund managers' fears that inflation will continue to rise.

"Central banks are trying to convince us that inflation is short-lived," said Nomura Asset Management's bond fund manager. Given the circumstances it seems to us that they are ignoring, if you want to show that the present is cheaper than before then it is wrong.

On Tuesday, the 10-year-old US Treasury yield, the benchmark for financial assets worldwide, rose to 1.7 per cent, the highest level since June and rose sharply from 1.71 per cent a week earlier. Growth in the UK has been the fastest and the 10-year gilt yield has crossed 1 per cent for the first time since March last year.

Even the eurozone, where interest rates are likely to rise, is far from over. Yields on 10-year German bonds rose to a three-month high of 0.15 per cent on Tuesday.