Thursday’s rout pushed the benchmark US 10-year yield to its highest level since 2002 and sent Britain’s 30-year gilt above 6% for the first time since 1998, as investors bet persistent inflation will keep interest rates elevated for longer.
Global Bond Sell-Off Explained: Why Yields Are Surging Everywhere
A renewed global bond sell-off intensified on Thursday, pushing borrowing costs in the United States, Britain, France and Japan to levels not seen in decades. The moves reflect growing investor concern that stubbornly high oil prices will reignite inflation and force central banks to keep interest rates higher for longer, rather than cut them as many had expected earlier this year.
The yield on the 10-year US Treasury note, a global benchmark for borrowing costs, climbed to 5.34% on Thursday, its highest level since 2002. The move came even though inflation data released a day earlier had come in below forecasts, a reading that had been expected to ease pressure on yields rather than add to it.
UK 30-Year Gilt Yield Tops 6% for the First Time Since 1998
In Britain, the sell-off pushed the 30-year gilt yield above 6% during a volatile morning of trading, a level last reached in 1998. Yields on five- and 10-year UK government bonds also rose, adding to the borrowing costs facing the government. The London stock market fell by about 1.7% in early trading as investors retreated from riskier assets alongside the bond rout.
The jump compounds pressure on Chancellor John Healey, who is preparing to deliver his first budget on October 28. Gilt yields had already climbed to a 28-year high in recent weeks, and the latest move leaves the government facing a more expensive path to financing its borrowing plans.
France and Japan Also Hit by the Global Bond Rout
The sell-off was not confined to the US and UK. French 10-year bond yields rose to their highest level since 2002, while Japanese government bond yields moved toward the multi-decade peak set last month. Economists have pointed to rising global debt loads and persistent inflation worries as common threads running through bond markets in all of these countries.
Why Investors Are Worried About US Debt and Inflation
Much of the recent pressure traces back to concerns that the US federal deficit is reaching unsustainable levels, alongside fears that elevated oil prices will push inflation higher just as central banks were weighing whether to ease policy. Rising yields also show up elsewhere in the economy: the rate on the most popular US home loan rose last month to its highest level in more than two years, crossing 7% for the first time since the start of President Donald Trump’s current term.
The US Treasury has announced bond buybacks aimed at limiting the rise in borrowing costs, but long-dated yields have continued to climb regardless.
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Beyond the announcement
Not every part of the economy is slowing as yields rise. Some analysts point to a structural shift already under way, with spending on AI, healthcare and services continuing to expand largely independent of the level of borrowing costs — which may help explain why growth expectations, and yields along with them, have stayed elevated even as rates climb.
Analysis
Higher government borrowing costs tend to filter through to mortgages, corporate loans and public finances alike, and Thursday’s moves raise the stakes for governments already managing large deficits. The next milestone to watch is the UK’s October 28 budget, where Chancellor Healey must set out tax and spending plans against a backdrop of borrowing costs last seen a generation ago. Until bond markets find a floor, businesses and households in the US, UK, Europe and Japan face a higher cost of capital than they have budgeted for in recent years.
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