Global government bond markets faced massive selling pressure on Wednesday, pushing sovereign bond yields and borrowing costs to their highest levels in decades. Germany's 10-year bond yield hit 3.375%, its highest since 2011, while Japan's 10-year bond yield crossed the 3% threshold for the first time in 30 years at 3.016%.
Elsewhere in the Western markets, the 10-year US Treasury yield held firm above 4.8%, its highest level since early 2025. At the same time, the yield on 10-year British government bonds (gilts) climbed to 5.25%, extending its record high not seen since the 2008 global financial crisis.
Fixed-income market sentiment was hit hard by concerns over a resurgence in global inflation, fuelled by escalating military conflicts in the Middle East and a surge in international energy prices. This has added to investor concerns about large fiscal deficits and large government debt piles in giants such as the US, Japan and France.
The bond sell-off was also fuelled by expectations of simultaneous monetary tightening by major central banks this month. Fed Chairman Kevin Warsh's hawkish message at Jackson Hole, the potential for a rate hike by the Bank of Japan to defend the yen, and expectations of a rate hike by the European Central Bank (ECB) in the wake of surging eurozone inflation put pressure on debt instruments.
The impact of the rise in bond yields also spilled over into international equity markets as investors shifted to a risk-off phase. Wall Street indices including the S&P 500 fell for a third straight day and Asian and European bourses fell, reflecting concerns that rising capital and debt costs will dampen global economic growth.
