By Kevin Buckland, Alun John and Rae Wee
TOKYO/LONDON/SINGAPORE, Sept 1 (Reuters) - A sell-off in global bond markets deepened on Tuesday, with Japan's 10-year yield hitting 3% for the first time since 1996, the latest manifestation of trader angst about energy-driven inflation, monetary tightening and worsening fiscal conditions.
The rout took in major economies from the United States to Germany as well as Britain, where bond yields surged 10 basis points, playing catch-up with global moves after
Monday's UK public holiday.
British and euro zone yields hit fresh over-10-year highs as the Middle East crisis stoked price pressures globally, driving market bets that central banks will raise interest rates soon.
A deluge of bond sales from big tech companies aggressively raising money to fund the AI boom, in an environment where the U.S. debt load has passed $40 trillion, has exacerbated government bond selling in recent weeks. Yields rise when bond prices fall.
Governments are jittery, and last month the U.S. Treasury stepped into markets in a bid to cap a rise in borrowing costs. Still, 30-year Treasury yields have already started climbing again.
INFLATION, FISCAL WORRIES
The scale of the global shift is underscored by the rise in 10-year Japanese government bond (JGB) yields to 3% for the first time in 30 years, something seen as practically unthinkable until recently after over a decade of massive central bank debt purchases kept rates artificially low.
The rise in U.S. and Japanese yields reflects inflation and fiscal worries, said Tai Hui, APAC chief market strategist at J.P. Morgan Asset Management.
"The stalemate in the Middle East risks pushing energy prices higher ... meanwhile, few actions have been taken to consolidate fiscal deficits in both economies."
Brent crude rose nearly 2% to over $92 a barrel on Tuesday and European natural gas prices were at their highest since March, after Monday saw the first exchange of direct attacks between the U.S. and Iran in a month. [O/R][NG/EU]
END OF ERA? DEFINITELY
For Japan in particular, higher yields increase the cost of servicing the developed world's biggest debt pile at a time when Prime Minister Sanae Takaichi is planning aggressive investment. Five-year JGB yields hit a record high 2.26%.
But the move in yields is very much a global story, and causing problems for governments around the world.
U.S. 10-year Treasury yields pushed to the highest since January 2025 at 4.798%, while the 30-year yield was at 5.27% just 6 basis points shy of levels before August's intervention. [US/]
Germany's 10-year yield was at 3.35%, its highest since 2011,, as data showed euro zone inflation rose above 3% in August, cementing bets on a September European Central Bank rate rise, while Britain's 10-year gilt yield rose to 5.25%, its highest since 2008. [GVD/EUR]
BOND MARKET PAIN
Here are some related stories on the surge in government bond yields, what's behind them and why investors and borrowers are worrying:
- Under Pressure Tracking the pain in G7 government debt
- What's behind the selloff in world bond markets?
- EXPLAINER Why the bond market may be resetting expectations about the US
- AI-driven surge in bond yields could be next risk for markets and growth
REAL YIELDS A DRIVER
Analysts noted some different forces at play as global borrowing costs rise.
"In Europe and the UK it is more because of heightened inflation expectations, while in the U.S. the upticks in long-end yields are still more driven by higher real yields although inflation expectations have been creeping up too," said Frances Cheung, OCBC's head of FX and rates strategy.
Real yields are the returns that a bond investor demands above inflation, an indicator of true borrowing costs for governments and companies, and can be affected by several factors, including long run economic growth.
U.S. Treasury Secretary Scott Bessent shrugged off worries about the bond market in an interview with Reuters on Sunday, saying the effect of higher energy prices would fade and higher yields reflected confidence in the economy.
Michiel Tukker, senior rates analyst at ING, said it did appear that growth in the U.S. and elsewhere in the world was pushing up real yields.
"Combine that with the deficit story, and a lot of supply (of debt) and you could argue that things don't look that stretched yet. Real rates are still on par or even a bit below pre-2008 levels," he said.
"There's no easy turnaround ... and if you ask who will take the other side of this trade (i.e. betting yields will fall), that's difficult to see."
And the global story can become self-reinforcing, since higher yields in one market can push them up elsewhere.
Australian 10-year yields notched their sharpest rise in five months on Tuesday, in part due to fears higher JGB yields would mean fewer Japanese buyers of Australian debt. [AUD/]
Further Japanese yield rises could drive a gradual re-allocation into Japanese assets, said TD Securities senior rates strategist Prashant Newnaha.
"It's a genuine regime change. JGBs were the anchor for global fixed income for a long time," he said.
"Now it has flipped."
(Reporting by Kevin Buckland in Tokyo, Rae Wee in Singapore and Alun John in London; Editing by Sam Holmes, Dhara Ranasinghe and Susan Fenton)
