Global bond rout sends borrowing costs to multi-year highs ahead of central bank decisions

A sweeping sell-off in government bonds has driven borrowing costs to multi-year highs across the world's major economies, rattling investors and raising the stakes for central banks meeting this week in Washington, London, and Frankfurt.

The benchmark U.S. 10-year Treasury yield climbed above 5% on Monday for the first time since October 2023, according to Reuters, a psychological threshold that analysts warned could ripple through the global economy. The sell-off has been especially acute in the United Kingdom, where the 30-year gilt yield neared 6% on Tuesday — its highest since 1997 — while shorter-term gilt prices now imply the Bank of England could raise rates as many as four times in the next 12 months.oilprice+1

Central Banks in the Crosshairs

The Bank of England is widely expected to hold its benchmark rate at 3.75% when it announces its decision on Thursday, though three members of the Monetary Policy Committee voted for a hike at its July meeting. Andrew Wishart, senior UK economist at Berenberg, warned the Bank "must deliver" on earlier signals to raise rates if needed, or risk "losing credibility" and triggering a sell-off in the pound. Others counseled patience. "The Bank of England knows it cannot pump more gas into Europe," said James Carter of W1M. "Its job is to stop the shock becoming embedded in wages and prices, and the evidence for that remains limited".reuters+2

The European Central Bank tightened monetary policy for the second time since 2023 earlier this week, and the Federal Reserve is expected to decide on Wednesday whether to follow suit.oilprice+1

France's Fiscal Reckoning

In Europe, France's borrowing costs relative to Germany have widened to roughly 96 basis points — the highest spread since the European sovereign debt crisis more than a decade ago. AXA ↗ 0.45% CEO Thomas Buberl, speaking to Bloomberg Television on Tuesday, urged France's next president to pursue structural reforms rather than rely on tax increases. "The risk is then that the markets will show very clearly that they are dissatisfied," Buberl said. He also warned against a proposal from far-left presidential candidate Jean-Luc Mélenchon to cancel bonds held by the European Central Bank and the Bank of France, calling it "dangerous" and a move that "plays with fire and plays with the credibility of France".insurancejournal+1

Greece, once the symbol of Europe's debt crisis, now borrows more cheaply than France. Greek 10-year yields closed at about 4.29% on Tuesday compared with roughly 4.50% for France, a reversal driven by Greece's shrinking deficits and France's widening ones.greekreporter

Australia Confronts Rising Costs

Australia's 10-year government bond yield has climbed to 5.42%, approaching levels not seen since the aftermath of the global financial crisis. Commonwealth gross debt has risen more than 170% since mid-2015 to exceed $1 trillion, much of it borrowed at historically low rates now rolling over at far higher costs.capitalbrief

Treasurer Jim Chalmers is set to release an intergenerational report next week projecting gross debt at around a quarter of GDP by the 2060s — roughly $530 billion less than previously forecast — with the deficit projected at close to 1.5% of GDP, 1.2 percentage points lower than the prior outlook.headtopics+1