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 in decades and rattling investors.
As rising oil prices compound worries about inflation, bond yields are testing fresh highs, squeezing government budgets and raising interest rates on a wide range of consumer and business loans. The yield on 10-year U.S. Treasury notes, perhaps the world’s most influential interest rate, reached its highest since January 2025, and the 30-year yield continued to hover around a two-decade high.
In other important bond markets, the yield on 10-year Japanese bonds climbed above 3 percent for the first time since 1996, the yield on 10-year British bonds reached their highest level since mid 2007 and 10-year German bonds hit levels last seen in 2011.
America’s rising borrowing costs have set off a battle between Treasury Secretary Scott Bessent and bond investors, but the factors pushing up yields in the United States are also issues in other big markets. In many advanced economies, widening budget deficits, high debt levels and stubborn inflation have unnerved investors who believe that governments are either unable or unwilling to take steps to improve their fiscal situations.
A borrowing binge by technology companies to build artificial intelligence systems is another factor in rising yields. Companies have issued billions of dollars in bonds, swamping markets and pulling investors away from government debt.
“It’s a global story,” said Peter Schaffrik, a strategist at RBC Capital Markets in London.
One of the most pressing and unpredictable drivers of higher yields is the protracted war in Iran. As the United States and Iran renewed attacks recently, the price of oil and natural gas has began to climb again. Brent crude, the international oil benchmark, was higher again on Tuesday to above $90 a barrel, nearly 30 percent higher than prewar levels.
The jump in energy costs — the prices of refined fuels like gasoline and diesel have risen even faster — has increased expectations of accelerating inflation that could prompt central banks to raise the short-term interest rates they control. Higher fuel prices also add enormous costs to governments in Asia and Europe, which are big energy importers.
Government debt levels, in some cases, have already reached eye-watering levels. America’s gross national debt topped $40 trillion for the first time last month, or more than 120 percent of the size of the economy. In France, public debt exceeded 3.5 trillion euros (about $4 trillion), which is 117 percent of the size of its economy. In Japan, the government is spending heavily despite a public debt pile that is more than twice the size of its economy.
In the eyes of investors, many politicians don’t appear worried enough about these debt levels. Instead, investors see government plans that are not likely to shrink budget deficits.
In Europe, France is at the forefront of investors’ skepticism in the run-up to a presidential election next year, in which none of the front-runners appear to have what investors consider credible plans to reduce ballooning debt levels. 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, more than the southern European economies like Italy and Greece that were at the center of past debt crises. This summer, the yield on French government bonds climbed above Italy’s.
It’s not clear how this will resolve itself soon, but pressure from the bond market may force changes, Mr. Schaffrik said. “You need some kind of a disciplinary factor, and that’s probably the bond market,” he noted.
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