A global sell-off in government debt deepened on Tuesday as renewed fighting in the Middle East and stubborn inflation pressure pushed sovereign borrowing costs across the US, Europe, Asia and the UK to their highest levels in years — in some cases decades. Traders are treating bonds as a source of risk rather than a haven, with UK 30-year gilts hitting a 28-year high just weeks before an October Budget.
Middle East escalation pushes US yields higher
The 10-year Treasury yield rose more than 2 basis points to 4.784%, the highest level since Jan. 14, 2025. The 30-year Treasury yield, which tends to track geopolitical events, also climbed more than 2 basis points to 5.271%.
Borrowing costs rose as traders weighed developments in the Middle East, after U.S. forces launched fresh strikes against Iran and a tanker was struck by unknown projectiles off the coast of Oman in the Strait of Hormuz. The escalation also pushed West Texas Intermediate 1.49% higher to $87.04 a barrel. Brent crude advanced too, up 1.34% to $91.71.
Europe and Asia hit multi-decade highs
The move mirrored heavy selling across international debt markets rather than the traditional safe-haven bid bonds often see in a crisis. Germany's two-year Schatz yield rose for a fifth consecutive session to 2.936%, its highest since July 2024. Its 10-year Bund yield jumped to 3.352%, the highest since 2011. France's 10-year OAT yield rose to 4.15%, its highest since November 2008.
Japan's benchmark 10-year government bond yield spiked to 3.000%, its highest since late 1996. The two-year JGB yield reached a record 1.800%. Money markets have also repriced the odds of a 25-basis-point Fed rate hike in September to 60%, with the European Central Bank widely expected to raise rates on Sept. 10.
UK gilts hit a 28-year high before the Budget
Britain's 30-year gilt yield rose to 5.89%, the highest since 1998. The 10-year gilt yield climbed to its highest rate since June 2008. The moves add pressure on Prime Minister Andy Burnham ahead of his first Budget next month, since higher borrowing costs reduce the fiscal headroom available to Chancellor John Healey.
Kathleen Brooks, research director at investment company XTB, told the BBC News Channel: "Of course, this is red lights flashing." Every time bond market yields rise, she says, the UK has to pay more on its debt interest.
Sources: US Top News and Analysis, Forex News, BBC News
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