Global bond yields hit highest level since 2008

A sweeping selloff in government bonds deepened on Tuesday, driving borrowing costs across the world's largest economies to multi-decade highs as rising oil prices, hawkish central bank signals, and ballooning fiscal deficits converged to rattle investors.

The yield on a Bloomberg gauge of global sovereign debt climbed to 3.72%, its highest since mid-2008. Japan's 10-year bond yield hit 3% for the first time since 1996, Britain's 10-year gilt surged above 5.25% to levels not seen since 2008, and Germany's equivalent yield rose to a 15-year high of 3.36%. The 10-year U.S. Treasury yield climbed to around 4.79%, its highest since early 2025.wtvbam+3

"I think there is now something of a sense of resignation — tinged with helplessness — about rising interest rates," said Ryutaro Kimura, a senior strategist at BNP Paribas Asset Management in Tokyo.reuters

Oil and Iran Add Fuel

Renewed hostilities between the United States and Iran have sent Brent crude past $92 a barrel, up roughly 2% on the day. U.S. forces struck Iranian launchers on Larak Island, and Iran later fired on U.S. positions in Jordan, raising fears of prolonged disruptions to energy flows through the Strait of Hormuz. President Donald Trump has threatened further strikes. The conflict has injected fresh inflation risk into markets already contending with sticky price pressures, reinforcing the case for tighter monetary policy worldwide.investing+2

Euro zone inflation data released Tuesday showed prices rising back above 3% in August due to higher energy costs, bolstering expectations of a September rate hike from the European Central Bank.reuters

Warsh's Hawkish Turn

Federal Reserve Chair Kevin Warsh's Jackson Hole speech last Friday acted as the initial catalyst. Warsh called the Fed's 2% inflation target "firm" and "fixed" and signaled that policy easing was not forthcoming. Markets responded swiftly: traders are now pricing a roughly 65% chance of a quarter-point Fed rate hike at the September 16 meeting, up from 40% a week ago, according to CME's FedWatch tool. Economists at Barclays ↗ 0.37% and Société Générale revised their forecasts to predict hikes they had not previously anticipated.business-standard+2

"I think the Fed hikes in September, and I think it's the beginning of the three-rate hike cycle at minimum," said Andrew Lilley, chief rates strategist at Barrenjoey in Sydney.live.euronext

Fiscal Strain and Market Spillovers

The selloff extends well beyond monetary policy. Heavy government borrowing across the U.S., Japan, the U.K., and France has prompted investors to demand greater compensation for holding longer-dated debt. At the same time, a surge in bond issuance by technology firms funding artificial intelligence infrastructure is crowding out demand for sovereign bonds.nytimes+2

Stock markets wilted under the pressure. U.S. futures for the S&P 500 fell 0.6%, Europe's STOXX 600 dropped, and Hong Kong's Hang Seng slid 1%. Semiconductor stocks bore the brunt, with the iShares Semiconductor ETF ↗ 3.52% falling 2%.247wallst+1

"The bond market is not imploding, but it's sending a very clear memo that stickier inflation means higher for longer policy rates as the absolute minimum," said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities The Toronto-Dominion Bank ↘ 1.36% in Singapore.finance.yahoo