Bond Yields Surge Across Major Economies
A global sell-off in government bonds intensified on Tuesday, pushing up borrowing costs in some of the world's largest economies to their highest levels in decades and rattling investors, according to reports from The Globe and Mail and NZ Herald.
The yield on 10-year Japanese bonds climbed above 3% for the first time since 1996, while the yield on 10-year British bonds reached its highest level since mid-2007. German 10-year yields hit levels last seen in 2011. In the United States, the yield on 10-year Treasury notes reached its highest since January 2025, and the 30-year yield continued to hover around a two-decade high, as reported by The Globe and Mail.
These moves reflect a broader trend of rising borrowing costs that could squeeze households and companies while exacerbating government finances. The yield on 30-year S. Treasury notes rose to its highest since 2007 earlier in August, and S. 30-year mortgage rates have climbed to a one-year high of nearly 6.7%.
Drivers: Inflation, Oil, and Debt
Analysts point to a combination of factors driving the sell-off. Widening budget deficits, high debt levels, and stubborn inflation have unnerved investors who believe governments are either unable or unwilling to take steps to improve their fiscal situations.
A key factor is the recent rise in oil prices. Brent crude, the international oil benchmark, rose on Tuesday to above US$90 a barrel, nearly 30% higher than pre-war levels, according to The Globe and Mail. NZ Herald reported Brent crude at above US$92 a barrel. The jump in energy costs has heightened expectations of accelerating inflation, which could prompt central banks to raise short-term interest rates.
Another factor, as noted by both outlets, is a borrowing binge by technology companies building artificial intelligence systems. Companies have issued billions of dollars in bonds, swamping markets and pulling investors away from government debt.
The Iran War's Impact
One of the most pressing and unpredictable drivers of higher yields is the protracted war in Iran, according to both sources. As the United States and Iran renewed attacks recently, the price of oil and natural gas began to climb again.
"It's a global story," said Peter Schaffrik, a strategist at RBC Capital Markets in London, in comments reported by both The Globe and Mail and NZ Herald. Schaffrik added, "You need some kind of a disciplinary factor, and that's probably the bond market."
Fiscal Challenges and Debt Milestones
The United States' gross national debt topped US$40 trillion for the first time last month, or more than 120% of the size of its economy, as reported by both outlets. In Japan, the government is spending heavily despite a public debt pile that is more than twice the size of its economy.
Debt as a share of economic output is at or above 100% across the G7 group of major economies, except Germany, according to The Globe and Mail. Britain's interest bill of almost 4% of output is now roughly double its pre-pandemic decade average, its fiscal watchdog said in March, and eclipses the defence budget.
France's reputation as one of Europe's safer financial havens has been eroded, and it is quickly becoming the region's most worrisome debt market, according to The Globe and Mail. This summer, the yield on French government bonds climbed above Italy's.
Central Banks and Policymakers
Federal Reserve Chair Kevin Warsh said last week that the central bank would have "work to do" if price pressures did not ease in a timely fashion, as reported by NZ Herald. His hawkish speech at the Jackson Hole symposium has added to traders' rate hike bets, according to The Globe and Mail.
The United States' rising borrowing costs have set off a battle between Treasury Secretary Scott Bessent and bond investors, as reported by The Globe and Mail. Bessent, who is meeting international finance ministers this week in Asheville, North Carolina, for a Group of 20 meeting, has said that worries about rising debt and yields overlook the strength of the S. economy.
The S. Treasury recently announced bond buybacks, which analysts say are aimed at limiting rising borrowing costs, according to The Globe and Mail.
Market Reactions and Outlook
Stocks around the world also dropped, with the S&P 500 falling in early trading in New York, Japan's Nikkei closing lower, and the Stoxx Europe 600 slipping half a per cent, as reported by NZ Herald.
Geoffrey Yu, a strategist at BNY Mellon, wrote in a note, "The confrontation between bond markets and policymakers is becoming a battle of attrition," according to NZ Herald.
The current environment suggests that bond yields will remain elevated as long as inflation persists and fiscal concerns mount. As Schaffrik noted, the bond market may be serving as a disciplinary force, squeezing governments and companies alike.