Investors Sell Off Bonds as US Government Yields Approach 5%

Developed nation bond markets are under pressure. Yields have risen sharply, indicating a drop in bond prices, amid a return to upward interest rate trajectories from central banks and concerns regarding the fiscal conditions of several countries.

The European Central Bank (ECB) raised interest rates by 2<0xA0>25 basis points (bps) to 2.5% on Thursday (10/09/2026). Meanwhile, the US Federal Reserve and the Bank of Japan (BOJ) are also expected to raise interest rates next week.

This shift in policy direction has driven up government bond yields in the US, UK, France, Germany, and Japan. It should be noted that rising yields indicate falling bond prices, as the two move in opposite directions.

US Treasury Yields Approach 5%

According to Refinitiv data, the two-year US Treasury yield closed at 4.644% on Friday (11/09/2026). This yield jumped 9.4 bps compared to the previous trading session at 4.550%.

The 10-year Treasury yield also rose 3.1 bps to 4.975%, approaching the psychological 5% level. Meanwhile, the 30-year Treasury yield fell slightly by 0.7 bps on Friday to 5.354%, though it remains above 5.3%.

Greater pressure was evident when calculated over the course of the week. The two-year Treasury yield surged 26.5 bps from its position of 4.379% last Friday. During the same period, the 10-year yield increased 19.1 bps from 4.784%, while the 30-year yield rose 10.8 bps from 5.246%.

The two-year yield recorded the sharpest increase because short-term debt is more sensitive to changes in Fed interest rate expectations. It is now at its highest level since July 2024. The 10-year yield also reached its highest level since 2023, while the 30-year yield briefly touched 5.361% on Thursday, its highest since 2007.

This increase occurred as the market became increasingly confident that the Fed will raise interest rates during its meeting on 15-16 September 2026. These expectations rose after US producer and consumer inflation data showed that price pressures remain high. The US Consumer Price Index (CPI) rose 0.4% month-on-month in August 2026. Annually, US inflation remains at 3.4%, still above the Fed’s 2% target.

Market participants now estimate an 87% probability that the Fed will raise interest rates by 25 bps this month, an increase from 67% before the consumer inflation data was announced. A surge in oil prices has also heightened expectations for rate hikes. Brent crude prices jumped 8.65% throughout the week, closing at US$104.61 per barrel. High energy prices can increase production, transport, and distribution costs.

The market is closely monitoring this pressure and its potential impact on inflation, which may remain high, forcing the Fed to maintain tight monetary policy for longer.

In addition to interest rate expectations, the bond market is also shadowed by US fiscal conditions. Total government debt has surpassed US$40 trillion, while the budget deficit for the 2026 fiscal year is expected to reach US$1.85 trillion, or nearly 6% of GDP. The wide deficit means the government must continue to issue bonds to meet financing needs. The increasing supply of debt instruments is also prompting investors to demand higher yields.

Developed Nation Bond Yields Also Surge

Similar pressure is being felt in UK, French, German, and Japanese government bonds. The sharpest increase in 30-year yields over the week occurred in France. According to Refinitiv data, the French 30-year bond yield surged 17.86 bps from 4.949% to 5.128% on Friday (11/09/2026).

UK bond yields also rose. The 30-year yield increased 13.49 bps to 5.909%, approaching 6%, its highest level since 1998. Meanwhile, German yields increased 8.29 bps to 3.894%.

In Asia, the Japanese 30-year debt yield increased 7.3 bps throughout the week, closing at 4.051%, after briefly touching a historic high of approximately 4.184%.

In Europe, 30-year bonds are a point of concern as they are widely held by pension funds and insurance companies. These institutions have payment obligations spanning decades and therefore require long-term assets. Changes in demand from pension funds and insurance companies can affect long-term bond prices. Their movement also reflects investor concerns regarding inflation, debt issuance needs, and the ability of governments to maintain budgets in the long term.

The trend of rising global bond yields warrants attention, as government debt serves as a benchmark for borrowing costs in an economy. Rising yields can increase government interest burdens, make household credit and corporate funding more expensive, and pressure stock markets. Increasingly attractive yields in developed nations can also encourage capital flight from emerging markets, including Indonesia.

This pressure is beginning to manifest in the domestic financial market. According to Refinitiv data, the 10-year Indonesian Government Bond (SBN) yield rose 0.85%, or approximately 6 bps, to 7.156% on Friday (11/09/2026), from 7.096% in the previous session. This rise in yield indicates that Indonesian government bond prices are also under pressure.