Watch out for heavy selling of global bonds; US yields surge to 4.81%, and Japan's yield surpasses 3%, its highest in 30 years.

Global bonds faced heavy selling pressure as rising oil prices added inflationary pressure and concerns about government debt pushed the 10-year US yield to 4.81%, while Japan's yield surpassed 3%.

On September 2, 2026, at 10:27 AM, Reuters reported that global bond markets faced heavy selling pressure on Wednesday, pushing borrowing costs in many countries to their highest levels in decades. This followed escalating conflicts in the Middle East, which drove up energy prices and fueled investor concerns about inflation and rising government debt.

Government bond yields are one of the key benchmarks for asset prices in financial markets. Higher yields mean higher financing costs, including interest rates on mortgages and consumer loans, as well as the cost of government funding, which could lead to greater constraints on government spending.

The yield on 10-year U.S. Treasury bonds surged to 4.81%, its highest level in nearly three years. If yields move closer to 5%, it could put further pressure on already volatile stock markets.

Meanwhile, the yield on 10-year Japanese government bonds stood above 3%, its highest level in 30 years, having surpassed that level for the first time since 1996. The yield on 10-year Australian government bonds also rose to 5.198%, its highest level in over 15 years.

The selling pressure spread to European markets, with German Bund futures falling 0.45% to their lowest level since 2554, while French OAT futures dropped 0.5% to a record low.

Charu Chanana, head investment strategist at Saxo, said that bond market investors are demanding higher returns for the sake of increased risk, driven by inflation, fiscal risk, and the massive volume of bonds entering the market.

She believes the selling pressure may be more severe than the fundamentals suggest in the short term, and that the 10-year US Treasury yield at 5% is becoming more likely before yields rise high enough to attract investors back in.

Another factor adding pressure to the government bond market is the accelerated issuance of bonds by major technology companies, which are raising large amounts of capital to support investments in artificial intelligence (AI).

Naka Matsuzawa, chief macrostrategist at Nomura Securities in Tokyo, said that the willingness of large technology companies, or hyperscalers, to raise capital even at relatively high interest rates is driving up yields across the market broadly.

The key question going forward is whether economic growth can accelerate at a higher cost of financing. Increased productivity from AI needs to translate into higher wages. If this happens, the economy might be able to cope with high interest rates.

The market is watching inflation and the direction of the Fed's interest rates.

Investors are also watching the Federal Reserve's (Fed) stance on dealing with inflation that remains above its 2% target, following signals from Fed Chair Kevin Warsh last week regarding a more bearish monetary policy. This has increased market speculation that the Fed may raise interest rates.

Pressure from energy costs remains a major concern for policymakers, with Brent crude rising another 1% to $95.61 per barrel on Wednesday, after surging nearly 6% in the previous day's trading.

Meanwhile, the yield on 2-year U.S. Treasury bonds, which typically moves in line with expectations about the Federal Reserve's interest rate direction, rose to 4.41%, the highest since January 2568.

The market is currently reflecting expectations that European central banks will raise interest rates next week, with approximately 68% probability that the Fed will raise rates the following week.

Japanese yields surpass 3%, reflecting fiscal pressure.

Structural shifts in financial markets are evident in the Japanese bond market, once one of the world's lowest-yielding markets. However, the yield on 10-year Japanese government bonds breached 3% for the first time in 30 years on Tuesday and stood at around 3.01% on Wednesday morning.

Fred Neumann, chief Asia economist at HSBC, said the rise in Japanese government bond yields reflects not only investor concerns about the country's fiscal outlook after the government signaled large-scale spending and investment plans in the coming years, but also reflects pressure from rising long-term financing costs globally.

The rise in yields has also drawn increased market attention to Japanese Prime Minister Sanae Takaichi and the government's aggressive investment plans, as well as the spending plans of the UK, France, and Germany, which are facing pressure from higher borrowing costs.

Chanana views Japan and the United Kingdom as being closest to the front line of risk, as rising yields are clashing with fiscal pressures and changes in monetary policy regimes, while France remains vulnerable to the direction of public debt.

UK government bond yields surged to their highest levels since 2551 on Tuesday, reflecting a spreading sell-off across global financial markets and increasing the risk that borrowing costs for governments, businesses, and households will remain high.

Reference: www.reuters.com

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