Japan’s 10-year yield hits 3% for the first time since 1996, while US, UK and German borrowing costs climb as fiscal deficits, energy prices and shifting investor demand fuel pressure across global bond markets.
A global bond-market selloff intensified on Tuesday as rising inflation concerns, swelling government debt and higher energy prices pushed borrowing costs sharply higher across major economies.
Japan’s 10-year government bond yield touched 3 per cent for the first time since 1996, marking a major shift for a market that had been anchored by years of ultra-loose monetary policy. German and UK 10-year yields also climbed to multi-year highs, while the US 10-year Treasury yield rose to around 4.8 per cent.
The renewed pressure on bond markets comes as investors reassess the sustainability of high government debt and deficits. US debt has reached $40 trillion, while higher borrowing costs are raising concerns about the cost of servicing debt and the impact on households and businesses through mortgages and other loans.
The selloff is also being amplified by geopolitical tensions. Brent crude rose nearly 2 per cent to above $92 a barrel, while European natural gas prices climbed to their highest level since March after renewed direct attacks involving the US and Iran. Higher energy prices risk keeping inflation elevated and complicating central banks’ efforts to ease monetary policy.
In the US, the rise in longer-term yields is being driven largely by higher real yields, or the returns investors demand above inflation. Analysts said stronger economic growth, widening deficits and increased bond issuance are contributing to the move.
More from BusinessEurope faces a somewhat different dynamic. Germany’s 10-year yield reached 3.35 per cent, its highest since 2011, while Britain’s 10-year gilt yield rose to 5.25 per cent, its highest since 2008. Euro zone inflation rose above 3 per cent in August, strengthening expectations of another European Central Bank rate increase.
Japan’s rising yields could have consequences well beyond its borders. Japanese investors have traditionally been major buyers of overseas bonds, but higher domestic yields could make Japanese assets increasingly attractive, potentially reducing demand for foreign debt.
That shift is already being felt in markets such as Australia, where 10-year yields recorded their sharpest rise in five months amid concerns that higher Japanese yields could reduce Japanese demand for Australian bonds.
The broader concern for policymakers is that higher yields can become self-reinforcing: rising borrowing costs increase government financing burdens, while tighter financial conditions can lift costs for companies and consumers.
