Government borrowing costs around the world are climbing at a pace not seen in decades, as investors grapple with geopolitical turmoil, stubborn inflation, and a wall of new debt issuance. The yield on the 30-year U.S. Treasury – the long end of the world’s most important bond market – reached 5.324% on Tuesday, its highest level since June 2007, adding to a sharp run-up over the past week.
The move is not confined to the United States. The 10-year gilt yield in the U.K. rose 2.6 basis points to 5.076%, while Germany’s 10-year bond yield touched its highest level since 2011. France’s equivalent hit a 16-year peak, and Japan’s 10-year government bond yield climbed to 2.945%, the highest in three decades.
Driving the selloff is a familiar set of worries: inflation, central bank policy, and a fractured geopolitical landscape. The ceasefire between Washington and Tehran collapsed on Monday night without an agreement, and no progress was made on reopening the Strait of Hormuz. President Donald Trump’s threat to bomb Oman if it interferes with negotiations pushed oil prices above $91 a barrel on Tuesday, amplifying fears that higher energy costs will keep inflation elevated for longer.
But some market participants see forces at work beyond geopolitics. Fundstrat technical strategist Mark Newton points to a three-year chart pattern on the 30-year Treasury that recently resolved itself, suggesting yields could be heading to 5.60% or even 5.70%. “Long-term yields look likely to push up at a quicker pace than normal given the recent resolution of this three-year triangle pattern,” Newton said.
Newton also highlighted a spillover from Japan, where weaker-than-expected growth was accompanied by a hotter GDP deflator. “Ten-year and twenty-year JGB yields pushed higher, and it spilled right over into U.S. markets, driving the long bond to new multi-year highs,” he said. If yields in other major developed markets continue to climb, investors will likely demand higher returns to hold U.S. government debt as well.
Fiscal worries are adding to the pressure. BMO strategists flagged concerns across the U.S., Japan, the U.K., and Europe, while Treasury issuance has been heavy. The latest 30-year auction cleared at its highest yield since 2001, and five of the previous seven 20-year auctions had tailed – a sign that demand for long-duration debt is waning. Governments are also ramping up defense spending, which is expected to drive borrowing higher in leading European countries.
Deutsche Bank argued that market pricing reflects an unusually benign combination of resilient growth and record-high equities, limited by additional central-bank tightening and contained commodity supply shocks. That combination may be difficult to sustain, according to macro strategist Henry Allen. “By definition, strong growth and buoyant risk assets mean that financial conditions will remain accommodative, raising demand and pushing central banks into faster rate hikes,” Allen wrote. The bank also noted that inflation remains above target, and its analysis shows that a CPI rate above 3% has historically corresponded with more than 100 basis points of tightening during the first year of Fed hiking cycles.
There is precedent for a sharp bond-market repricing even without a recession. In early 2024, stronger growth and inflation pushed the 10-year Treasury yield from 3.88% at the end of 2023 to a peak of 4.70% by late April as expectations for rapid Fed cuts were unwound.
Beyond government debt, supply from the corporate side is also weighing on the market. Neil Wilson, an investor strategist at Saxo UK, noted that issuance is clearly a factor – both on the government side, since they can’t stop spending, and on the corporate side, particularly from AI companies pouring money into capital expenditures. Dan Coatsworth, head of markets at AJ Bell, added that rising long-dated bond yields reflect concerns around high levels of government borrowing and investors demanding greater compensation for the risks of holding long-dated government bonds.
Energy remains a potential bearish trigger. BMO said yields have shown little willingness to fall despite softer economic data, and a renewed commodity shock would make the inflation picture even harder. Deutsche Bank warned that “the combination of a negative hit to both growth and inflation could hit equities and bonds simultaneously.” For now, long-dated Treasurys remain vulnerable from several directions at once: rising global yields, an economy that could prove stronger than expected, and persistent concerns around inflation and debt supply. As Deutsche Bank put it, “current market pricing is leaving almost no margin for error.”
