The Bloomberg Global Sovereign Bond Index rose to 3.72%, its highest level since mid-2008, extending its gains for a fourth consecutive session as inflation concerns intensified on rising oil prices and investors increasingly bet on continued monetary tightening worldwide, according to Bloomberg, as reported by Al Arabiya Business.
Sell-off spreads from the US to Asia
Bond prices in Japan and Australia fell on Tuesday, with the yield on 10-year Japanese government bonds touching 3% for the first time since 1996. The move followed a sell-off in US Treasuries that pushed 10-year yields to their highest levels since January last year.
US Treasuries came under mounting pressure at the start of September, with the 10-year yield rising above 4.75% for the first time since January 2025, while the 30-year yield remained above 5% for the longest period since 2006, according to Bloomberg data.
The rise in yields coincided with a widening US budget deficit and expectations of around 215 billion dollars in corporate debt issuance during September, alongside higher oil prices, renewed inflation concerns and stronger expectations of interest-rate increases.
Markets reprice the interest-rate path
Attention is turning to the Federal Reserve’s meeting in mid-September, amid growing bets on tighter monetary policy. Federal Reserve Chair Kevin Warsh’s remarks on Friday provided a fresh catalyst for the sell-off after he reiterated his commitment to containing inflation.
Idanna Appio, a portfolio manager at First Eagle Investments, said markets were now pricing in a higher path for short-term interest rates, not only in the US but globally, as investors reassessed the neutral interest rate.
Warsh’s comments prompted Barclays and Société Générale to revise their forecasts and anticipate interest-rate increases this year that had not been included in their previous estimates. Japanese swaps showed an approximately 92% probability of a rate increase by September, while Australian inflation data strengthened market bets on a fourth rate increase this year.
Deficits and oil weigh on bonds and stocks
Global bond markets have come under pressure in recent months amid concerns about higher government spending in the US, Japan and Britain, prompting investors to demand higher yields to hold longer-dated bonds. Renewed tensions between the US and Iran have also fueled fears of disruptions to energy supplies through the Strait of Hormuz, supporting oil prices and inflationary pressures.
The Bloomberg Global Bond Index has lost about 0.9% since the start of the year, after gaining 6.8% during 2025. In Japan, demand at the 10-year bond auction was in line with last year’s average, while yields on comparable Australian bonds jumped to their highest levels since 2011.
Mark Cranfield, a Bloomberg markets strategist, said fixed-income traders were watching Japanese bonds more closely and that Australian bonds had become as sensitive to moves in their Japanese counterparts as they were to US Treasuries. He added that the current environment remained negative for bonds as high inflation persisted and fiscal deficits widened in the US, Japan, Britain and France.
The yield on 30-year US Treasuries approached the levels that preceded the Treasury Department’s announcement last month that it would expand its bond buyback program. The pressure spread to equities, with the MSCI World Index down about 1% since reaching a record level in mid-August, as higher yields threaten the appeal of the rally driven by artificial-intelligence stocks.
Seasonal pressure and high borrowing costs
Bloomberg data showed that September and October were the worst-performing months for global bonds over the past decade, with average losses exceeding 1% in each. Prashant Newnaha, chief rates strategist at TD Securities, said the bond market was not facing a collapse but was signaling that persistent inflation meant interest rates would remain high for longer. He added that deteriorating fiscal conditions and the higher premium demanded on longer-dated bonds would remain among the main factors weighing on markets.
The surge in yields poses a challenge for US Treasury Secretary Scott Bessent, who took additional steps last month to curb their rise, and is also increasing pressure on President Donald Trump as the midterm elections approach and higher borrowing costs weigh on the economy.
