Global bond markets have come under renewed pressure, sending government borrowing costs in the United States, Britain, Germany and Japan to multi-year or multi-decade highs as investors assess the combined threat of inflation, higher interest rates and mounting public debt.
Japan’s 10-year government bond yield reached 3% on Tuesday, September 1, 2026, for the first time since 1996. Britain’s 30-year gilt yield is at its highest level in three decades, while German and French 10-year borrowing costs have climbed to levels last seen in 2011 and 2008 respectively.
US 30-year Treasury yields also reached their highest point since 2007 earlier in August, underlining the breadth of the sell-off. Bond prices fall as yields rise, reflecting the higher return investors demand to hold government debt.
Why are bond yields rising?
A fresh rise in oil prices, linked to tensions between the United States and Iran, has intensified concerns that inflation could remain stubbornly high. Higher energy costs can feed through into transport, heating and production, making it more difficult for central banks to bring price growth under control.
Investors have responded by reducing expectations for interest-rate cuts and increasing the possibility of further rises. Federal Reserve chairman Kevin Warsh used a speech at the Jackson Hole symposium last week to stress that inflation remained above the US central bank’s 2% target.
That has added to pressure on longer-term government debt, where yields reflect expectations for future interest rates as well as concerns about inflation and the supply of bonds coming to market.
The scale of government borrowing is also troubling investors. US federal debt has passed $40 trillion, while debt equivalent to at least 100% of economic output is now a feature of most G7 economies, with Germany the main exception.
In Britain, the Office for Budget Responsibility said in its March 2026 forecast that the cost of servicing government debt had risen from £39 billion, or 1.7% of national income, in 2019-20 to £106 billion, or 3.6%, in 2024-25. UK 10-year bond yields were described as the highest in the G7.
AI borrowing adds to bond supply
The bond market is also absorbing a surge of corporate borrowing to finance the artificial intelligence boom. Alphabet, Amazon, Meta, Microsoft and Oracle have together issued $220 billion of debt this year, according to LSEG data, more than double their combined total in 2025.
The borrowing is helping fund data centres, computing infrastructure and the development of AI models. It has contributed to global corporate bond issuance reaching a record $4.9 trillion so far in 2026, up 14% from the same point last year.
When governments and companies issue more bonds at the same time, investors can demand higher yields before committing fresh money. The resulting increase in borrowing costs can then spread across the wider economy.
Bond yields influence the rates paid on mortgages, car finance, student loans and business credit. In the US, 30-year mortgage rates have risen to nearly 6.7%, their highest level in a year, as Treasury yields have moved higher.
Higher yields also increase the cost to governments of refinancing debt as existing bonds mature. They can weigh on share prices by making relatively safe government debt more attractive, while leveraged investment funds may face additional pressure as financing costs rise.
What can policymakers do?
The US Treasury has attempted to support the market through bond buybacks. It announced in August that it would at least double the size of its liquidity-support purchases of longer-dated bonds from September 9, raising the maximum operation from $2 billion to at least $4 billion.
The move initially helped stabilise markets, but longer-term yields have since risen again. Treasury Secretary Scott Bessent has argued that concerns over US debt and borrowing costs underestimate the strength of the American economy.
Central banks can intervene during periods of severe market dysfunction. The Bank of England temporarily bought long-dated gilts during the 2022 mini-budget crisis after warning that disorderly trading posed a risk to financial stability and the flow of credit to households and businesses.
The European Central Bank has a similar backstop through its Transmission Protection Instrument, which allows it to buy government bonds to counter an “unwarranted, disorderly” rise in borrowing costs, subject to conditions including compliance with European Union budget rules.
For now, many investors regard the rise in yields as an orderly repricing rather than a market breakdown. But they warn that longer-term borrowing costs are unlikely to fall sustainably unless governments take credible steps to contain debt or improve economic growth.
That leaves so-called bond vigilantes watching closely. The term refers to investors who demand higher returns from governments they believe are borrowing excessively or failing to control inflation, forcing policymakers to face the cost of their fiscal decisions through the bond market.
