Global Bond Sell-off Intensifies, US Yields Hit 22-Year High
The sell-off in global bond markets continues to intensify. Long-term US Treasury yields have surged to their highest levels in more and more than two decades, amid investor concerns regarding inflation, high energy prices, and rising government expenditure.
The 30-year US Treasury yield rose to 5.48% on Thursday, the highest level since 2004, while the 10-year Treasury yield reached 5.20%. This rise in yields indicates increasing pressure on bond prices, as the global bond market has been under strain for several months.
This situation is occurring as investors face a combination of factors, ranging from high energy costs and robust US economic growth to concerns over increased government spending. Tensions involving Iran have also been a factor driving energy prices and heightening fears of inflationary pressure.
Investor anxiety has escalated after the 10-year US Treasury yield breached the 5% mark this month, a level rarely reached in recent decades. Markets are now closely watching the 6% threshold as the ‘next milestone’ that could increase pressure on US financial markets and corporations. The rise in yields is also being felt in the household sector; 30-year US mortgage rates are now around 7%, approximately one percentage point higher than before the conflict and at their highest levels in two years.
Since the US Federal Reserve’s policy meeting in June, the 10-year Treasury yield has increased by approximately 0.70 percentage points. Since the beginning of March, the increase has reached about 1.25 percentage points. Gennadiy Goldberg, US interest rate strategist at TD Securities, noted in a research note that much of the rise since March was driven by changing expectations regarding Fed policy, while the remainder was driven by a combination of rising growth expectations and higher oil prices.
Recent business activity data showing that the US economy remains strong, alongside rising inflationary pressures, has heightened market attention to the possibility of the Fed raising interest rates again. Unlike short-term bonds, which are more sensitive to Fed policy expectations, the 30-year Treasury yield reflects the return demanded by investors to finance the US government over the long term.
Zachary Griffiths, Head of investment grade and macro strategy at CreditSights, stated that we are seeing a repricing driven by the fact that US economic growth remains resilient, which serves as a positive reason for being in a higher risk-free interest rate environment. So far, US equity markets have been able to absorb the rising yields. Relatively strong economic growth, rising corporate profits, and massive investment related to the artificial intelligence (AI) boom continue to support investor sentiment. The Nasdaq index, dominated by technology stocks, even hit record highs on Tuesday. However, high bond yields could increase funding costs for governments, companies, and households.
Pressure is not limited to the US. Several major economies are also facing rising financing costs amid increasing needs for government spending. In Germany, financial authorities estimate federal government borrowing could reach a record €525.5 billion (approximately US$598 billion) in 2026, primarily driven by debt refinancing and increased funding requirements. The German 10-year government bond yield even breached 3.6% this month, its highest level in 17 years. In Japan, the 10-year government bond yield also reached its highest level since 1996 on Thursday.
Meanwhile, US nominal economic growth was around 8% in the second quarter of 2026, indicating the economy remains quite strong despite rising borrowing costs. US Treasury Secretary Scott Bessent is said to have taken several steps to dampen rising borrowing costs, yet these efforts have not been able to halt the rise in long-term bond yields. Hank Calenti, global market strategist at SMBC EMEA, remarked that US government bonds are competing with other market instruments for buyers, raising the question of how much higher yields can go. John Williams, President of the Federal Reserve Bank of New York, stated on Thursday that the US economy is showing ‘remarkable resilience,’ a factor causing investors to continuously adjust expectations regarding the direction of US interest rates and inflation.