The global bond selloff intensified on Thursday, pushing government borrowing costs across the United States, Europe and Japan to levels not seen in decades.
The sharp rise in yields is increasing pressure on stock markets, corporate borrowing costs and heavily indebted governments.
U.S. Treasury Yield Climbs to Highest Since 2002
The benchmark U.S. 10-year Treasury yield rose to around 5.34%, reaching its highest level since 2002.
The move follows a difficult third quarter for long-term U.S. government bonds, during which yields recorded their largest quarterly increase of the century.
Higher Treasury yields matter globally because they influence borrowing costs across mortgages, corporate debt and financial markets.
Energy Prices and Inflation Fears Push Yields Higher
Bond yields also moved higher as rising energy prices revived concerns about inflation.
Investors are worried that higher fuel and energy costs could keep inflation elevated and force central banks to maintain tighter monetary policy for longer.
At the same time, heavy investment in artificial intelligence infrastructure and data centers is contributing to expectations for stronger capital spending and potentially higher long-term interest rates.
Rising Rates Increase Financing Costs
The latest jump in yields is increasing borrowing costs for companies, consumers and governments.
Businesses face more expensive debt refinancing, while homeowners may experience higher mortgage rates.
Governments are also dealing with rising debt-servicing costs as interest payments consume a larger share of public finances.
AJ Bell investment director Russ Mould said geopolitical tensions in the Middle East and persistent inflation were among the factors pushing government bond yields higher.
French Bond Market Comes Under Pressure
France has emerged as one of the main areas of concern in European bond markets.
The 10-year French government bond yield rose around 10 basis points to 4.96%, moving close to the psychologically important 5% level.
French bonds are coming off their weakest quarterly performance since 1987.
The cost of insuring French government debt against default through credit default swaps also climbed to its highest level since 2013.
France Faces Growing Fiscal Concerns
The bond-market pressure comes as the French government prepares to present its 2027 draft budget.
The plan is expected to target around €54 billion in spending reductions.
Investors remain focused on France’s fiscal position, with the budget deficit projected at roughly 5.4% of GDP and public debt approaching 120% of GDP.
Concerns about the government’s ability to implement spending cuts have contributed to higher borrowing costs.
The yield gap between French 10-year bonds and benchmark German Bunds has also remained near multi-year highs.
UK Gilt Yields Reach Levels Not Seen Since 1998
Pressure has also intensified in the United Kingdom.
The UK 30-year gilt yield climbed to around 6.00%, its highest level since February 1998.
The move follows the recent sale of new 10-year UK government bonds, which carried the highest yield for that maturity since 1999.
Britain continues to face fiscal challenges linked to pension costs, social spending and other government commitments.
Rate-Cut Expectations Fade
The global bond selloff also reflects a major shift in expectations for central-bank policy.
Investors have reduced earlier bets on aggressive interest-rate cuts as inflation risks remain elevated.
Market pricing increasingly suggests that major central banks could maintain restrictive policy for longer than previously expected.
Federal Reserve Outlook Turns More Hawkish
Expectations for U.S. monetary policy have also shifted.
Despite softer U.S. inflation data, markets continue to price the possibility of further Federal Reserve tightening before mid-2027.
Higher interest-rate expectations have helped keep U.S. Treasury yields elevated and strengthened the broader higher-for-longer narrative.
ECB Policy Remains in Focus
European markets are facing similar pressures.
The European Central Bank has already raised interest rates twice this year, while markets are pricing the possibility of additional increases through mid-2027.
Energy-driven inflation remains one of the biggest risks for the eurozone economy.
For now, rising inflation expectations, heavy government borrowing and tighter monetary-policy expectations continue to drive the global bond selloff, keeping yields near multi-decade highs.
