Global bond markets continued to face turbulence this week, with long-dated government debt driving fresh losses. A widely tracked global bond index posted its sharpest one-day decline since early June, reversing much of the year’s earlier gains. Thirty-year bonds across major economies were at the center of the sell-off, with yields pushing to levels not seen in years.
In the United States, the 30-year Treasury yield briefly touched the 5% mark, a psychologically significant threshold, before easing slightly. Japan saw its 30-year government bond yield climb above 3.2%, setting a new record. Meanwhile, the UK’s long-term borrowing costs spiked to nearly 5.8%, their highest since the late 1990s. Analysts pointed to a combination of large-scale government issuance and waning demand for long maturities as key drivers behind the surge.
Market participants expressed concern that mounting fiscal deficits and increased political uncertainty are beginning to erode confidence in global bond markets. The strain was particularly visible in investor appetite for ultra-long bonds, which has weakened considerably.
Fiscal Uncertainty Fuels Market Anxiety
Rising borrowing costs have put a spotlight on the fiscal positions of major economies. In Japan, political tremors surrounding a close aide’s resignation from the prime minister’s team fueled speculation over future fiscal discipline. The UK also faced investor skepticism following a reshuffle in the prime minister’s advisory circle, which brought renewed focus on high borrowing needs and sluggish economic growth.
France, too, entered a politically sensitive phase as the government braced for a confidence vote over its controversial plan to cut public debt. Failure to secure support could deepen fiscal concerns in one of Europe’s largest economies. In the U.S., debates around Federal Reserve independence, tariff-driven price pressures, and expanding budget deficits added to investor caution.
Financial leaders have underscored the urgency of reforms. Market strategists warned that unless governments outline credible debt management strategies, global bond markets will continue to reflect the growing imbalance between fiscal expansion and investor confidence. Elevated yields now threaten to push borrowing costs even higher, potentially tightening fiscal space at a time when growth is already under pressure.
Signs of Stabilization, But Risks Remain
Despite the broad sell-off, midweek trading offered a glimmer of stability. U.S. long-term yields retreated modestly after weaker-than-expected labor market data reinforced expectations of interest rate cuts later this year. European markets also steadied, though French and German bond yields remained near multi-year highs.
Equity markets staged a partial rebound as bond market volatility cooled. Europe’s benchmark stock index rose on the back of gains in technology and consumer goods companies. The British pound recovered from recent lows, though currency traders remained cautious ahead of the government’s upcoming budget announcement, which could include tax changes aimed at addressing fiscal gaps.
Still, analysts warn that the calm may prove temporary. With fiscal fragility, heavy government borrowing, and political uncertainty converging across multiple economies, volatility is expected to remain a defining feature of global bond markets in the months ahead. Investors are now closely watching economic data releases and policy decisions that could either reinforce or alleviate current pressures.
Sources:
https://www.bloomberg.com/news/articles/2025-09-03/global-bond-selloff-is-extending-with-longer-debt-leading-losses
https://www.reuters.com/business/global-bond-markets-stabilize-now-fiscal-storm-looms-2025-09-03/
