Rising bond yields increase borrowing costs worldwide
A global sell-off in government bonds is raising borrowing costs for governments, businesses and households. The yield on 10-year German bonds reached its highest level since 2011, Japanese bond yields remain above 3%, and the yield on 10-year US Treasury bonds rose to its highest level since November 2023. Yields on UK government bonds also reached their highest point since 2008, CNBC reports.
Among the reasons for the new phase of falling bond prices, the outlet cites large volumes of government debt issuance, a jump in oil prices that has revived inflation concerns, and expectations of a longer period of tight monetary policy by central banks. Robin Brooks, a senior fellow at the Brookings Institution, considers this move a continuation of a medium-term trend that could last for many years.
Pressure on public finances
For governments, higher yields mean more expensive refinancing of debt that is coming due and a gradual increase in servicing costs. Masahiko Loo, senior fixed-income strategist at State Street Investment Management, described countries that combine a large budget deficit, high debt and reliance on external capital as the most vulnerable. Among developed markets, he singled out France, citing its deteriorating fiscal situation, limited political support for budget consolidation and electoral uncertainty.
Developing countries with twin deficits are also vulnerable, as higher global yields increase both borrowing costs and financing risks. Japan is particularly sensitive to higher rates: its public debt exceeds 200% of gross domestic product, while national debt servicing costs in fiscal year 2026 are estimated to account for more than a quarter of government spending.
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More expensive loans for businesses and households
Companies will have to spend more on refinancing debt and raising funds for expansion. Businesses with high debt, weaker balance sheets or floating-rate debt may be the most vulnerable. Thomas Brown, a portfolio manager at Keeley Teton Advisors, noted that small companies are more likely to have such debt, so their interest expenses may rise quickly.
Loo also listed commercial real estate, private equity-backed companies, direct lending portfolios and lower-quality software companies among vulnerable segments. At the same time, technology companies are issuing substantial amounts of debt to build data centers and other artificial intelligence infrastructure, competing for capital with governments and other corporate borrowers.
Higher long-term yields affect rates on mortgages, car loans and other types of lending. Households with lower incomes, which spend a larger share of their earnings on debt servicing and essential goods, may feel the burden first. Rising yields also put pressure on the stock market: government securities become a more attractive alternative to stocks, while companies' future profits are valued lower.
