London, 18 August (Brussles Morning Newspaper) A global bond sell-off gathered pace on Tuesday as investors demanded higher returns to hold government debt, pushing borrowing costs in the United States, Japan and parts of Europe to levels not seen for decades. Rising oil prices have revived inflation concerns at the same time as large government deficits and heavy debt issuance are testing demand in some of the world’s most important bond markets.
The move has been particularly severe in longer-dated debt. The yield on 30-year US Treasuries reached its highest level since 2007, while Japan’s benchmark 10-year yield climbed to just under 3%, its highest in about three decades.
Europe was caught in the same wave of selling. Germany’s 10-year Bund yield touched its highest level since 2011, while comparable French borrowing costs reached their highest since 2009. Bond prices move inversely to yields, so the rise reflects investors selling debt or demanding greater compensation to own it.
Oil above $90 brings inflation risk back into view
The latest bout of selling comes as oil prices moved back above $90 a barrel, adding to fears that inflation could prove more persistent than investors had expected.
Reuters reported that fading hopes of progress towards peace between the US and Iran helped lift crude prices. More expensive energy can feed into transport, manufacturing and household costs, complicating the task facing central banks trying to keep inflation under control.
For bond investors, that calculation matters. Persistent inflation erodes the real value of fixed interest payments and can keep central-bank rates higher for longer.
US 30-year Treasury yields were around 5.32% on Tuesday after rising almost 40 basis points last month, their largest monthly increase since December 2024.
Japan’s bond market adds another source of pressure
Japan has emerged as a particularly important part of the story.
Expectations that the Bank of Japan could raise interest rates as soon as September have helped lift Japanese yields. The country’s 30-year borrowing costs are now just above 4%, making domestic bonds more attractive to Japanese investors who have historically been major buyers of US government debt.
That shift matters for Washington because Japan remains the largest foreign holder of US Treasuries.
US Treasury Department data released on Monday showed foreign holdings of Treasuries fell in June, with declines led by Japan, the UK and China. The Treasury’s TIC system tracks cross-border securities transactions and holdings and is closely watched for changes in overseas demand for US assets.
Investors demand more for taking long-term risk
Charu Chanana, chief investment strategist at Saxo Bank in Singapore, told Reuters: “The market is demanding a higher term premium for holding long-duration government debt.”
The global bond sell-off is therefore about more than one inflation scare. Investors are weighing rising fiscal deficits, the volume of government borrowing and increased competition for capital from large artificial intelligence companies that have stepped up bond issuance this year.
US debt auctions have also come under closer scrutiny after persistently higher yields at sales last week raised questions about the price investors require to absorb additional government borrowing.
Why rising bond yields matter beyond financial markets
The consequences can quickly reach households and businesses.
Government bonds establish benchmarks for borrowing throughout an economy. When sovereign yields remain high, companies can face more expensive financing, while mortgage rates and other forms of credit can also come under upward pressure.
Governments face the same problem. Higher refinancing costs can make servicing existing debt more expensive over time, placing additional strain on public finances and potentially limiting room for future spending.
For Britain, the international nature of the sell-off is significant. The UK was among the countries whose US Treasury holdings declined in June, while British borrowing costs operate in a global market increasingly sensitive to inflation and fiscal credibility.
What markets will watch next
Attention is now likely to centre on oil prices, inflation data, government debt auctions and signals from the world’s major central banks.
Japan will be closely watched for indications of whether the Bank of Japan is preparing another rate increase, while US Treasury auctions will provide further evidence of investor appetite for government debt.
The central question is whether the global bond sell-off proves temporary or reflects a more lasting shift in what investors expect to be paid for lending to governments. For policymakers, businesses and households, the answer will help determine how expensive borrowing becomes in the months ahead.
