Global bond yields surge as debt and inflation risks mount

A selloff in global bond markets deepened on Tuesday, reflecting investor angst over inflation and government debt levels that stand to inflict fresh pain on consumers and businesses.

Japan's 10-year yield hit 3% for the first time since 1996 as the rout hit bond prices, driving up yields, in major economies around the globe. Yields hit their highest in 15 years in Germany and their highest since 2008 in the UK. In the US, the 10-year yield rose 3 basis points to 4.788%, putting it in range of its highest level since 2023.

Some of the world's leading economies, notably the US, have sharply increased their debt loads in recent years through deficit spending, with the US debt hitting $40 trillion - a shift investors warn is likely structural rather than episodic and will be difficult to remedy without tough choices at the national level. Meanwhile wars from Russia-Ukraine to the Middle East have sent oil and gas prices higher, adding to pressure on interest rates and the cost of living.


"This is likely primarily a US-specific story, though global currents are amplifying it," said David Krakauer, vice president of portfolio management at Mercer Advisors. "The core drivers are largely domestic: deficit spending, the cost of servicing a rising debt load, and shifting Treasury auction dynamics," in which price-sensitive buyers such as hedge funds and other private firms have in part supplanted price-insensitive official buyers such as central banks.

A deluge of bond sales from big tech companies aggressively raising money to fund the AI boom is adding to the pressure on bonds.

Governments are jittery. The US Treasury stepped into markets last month in a bid to cap a rise in borrowing costs, which can spill over to higher loan rates for everything from household mortgages to business loans. Yields on 30-year Treasuries are close to the highest in 19 years.

"Many developed markets have seen their long-term funding costs rise, as borrowing needs from both the public and private sectors have increased," HSBC chief Asia economist Frederic Neumann said.