Long-term borrowing costs across major economies rose sharply on Tuesday, with bond yields in the United States, Japan and Germany reaching multi-year or multi-decade highs as renewed inflation concerns compounded worries over government finances.
According to Reuters, the latest selloff reflected rising oil prices, expectations of tighter monetary policy in Japan and persistent concerns about fiscal deficits across major economies. Higher sovereign yields also threaten to increase borrowing costs for companies and households.
U.S. 30-year yields hit highest since 2007
The yield on 30-year U.S. Treasuries climbed to its highest level since 2007, as oil prices moved back above $90 a barrel. The increase came amid fading expectations for a lasting peace agreement between the United States and Iran, raising concerns that higher energy prices could fuel inflation.
The 30-year Treasury yield was last around 5.32%, having risen nearly 40 basis points in July, its biggest monthly increase since December 2024.
Reuters reported that recent U.S. government bond auctions have also highlighted concerns over investor demand for Treasuries as the country's fiscal deficit continues to expand.
Japan bond yields surge
Japan's government bond market was also under pressure. The benchmark 10-year Japanese government bond yield climbed to just below 3%, its highest level in about three decades.
Inflation concerns and expectations that the Bank of Japan could raise interest rates as early as September have contributed to the increase in Japanese borrowing costs. The yield on 30-year Japanese government bonds also moved above 4%.
Rising domestic yields could make Japanese government debt increasingly attractive to local investors, potentially reducing demand for overseas assets such as U.S. Treasuries.
Japan is the largest foreign holder of U.S. government bonds, making changes in Japanese investor demand an important factor for the Treasury market.
European bond markets under pressure
European government bonds also experienced significant selling pressure. Germany's 10-year Bund yield reached its highest level since 2011, while France's 10-year borrowing cost climbed to its highest since 2009.
The moves underscore growing concerns about inflation and fiscal pressures across the euro zone. As government bond yields rise, bond prices fall, while higher sovereign borrowing costs can feed through to corporate loans, mortgages and other forms of credit.
Fiscal concerns add to bond market pressure
Analysts cited several factors behind the broader bond market selloff, including increased government borrowing needs, competition for capital from large technology companies and uncertainty over future monetary policy.
AI-focused hyperscalers have significantly increased bond issuance this year to finance their investment programmes, creating additional competition for investor capital in fixed-income markets.
In the United States, investors are also closely watching the Federal Reserve's policy communication under its new leadership, adding another layer of uncertainty to the outlook for Treasury yields.
Foreign demand for Treasuries weakens
Data from the U.S. Treasury Department showed that foreign holdings of U.S. government bonds declined in June, with Japan, Britain and China among the countries reducing their holdings.
The decline comes at a sensitive time for the Treasury market, where the U.S. government faces substantial financing requirements.
Reuters reported that rising yields in Japan could encourage Japanese investors, traditionally major buyers of U.S. government debt, to allocate more funds domestically as the Bank of Japan continues to normalise monetary policy.
The combination of higher inflation risks, rising fiscal deficits and changing global demand for government debt is therefore putting renewed pressure on long-duration bonds. If elevated yields persist, the impact could extend beyond sovereign markets, raising financing costs across the global economy.
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