Why Are Government Bond Yields Rising Around the World?

Long-term yields are rising together, making borrowing more expensive worldwide

Long-term yields in the United States, Germany, Japan and the United Kingdom are approaching or reaching multiyear highs simultaneously. Higher yields make borrowing more expensive for governments, businesses and households. This is a global repricing of financing costs.

The following are 10-year government bond yields as of August 17–18:

United States: approximately 4.72%.

Germany: approximately 3.22%.

Japan: approximately 2.95%.

United Kingdom: approximately 5.06%.

Four forces are behind this

First, sticky inflation. Prices are falling back more slowly than expected, keeping policy rates high for longer, depressing bond prices and pushing yields up.

Second, expanding fiscal deficits. Bond issuance remains high in many countries. As supply increases, investors demand higher returns.

Third, the return of term premiums. The safety premium of past years is fading, and investors want greater compensation for holding long-term bonds.

Fourth, deglobalisation and renewed inflation. Supply-chain restructuring, industrial subsidies and military spending are raising long-term inflation expectations.

The transmission mechanism

When bond prices fall, yields rise. With abundant supply and cautious demand, long-term yields are easier to push up than down.

Potential consequences and points to watch

First, higher risk-free rates. Discount rates for global assets rise together, putting pressure on the valuations of long-duration assets such as equities and property.

Second, financing costs squeeze the economy. Governments pay more interest, businesses face higher investment costs, and households pay more for mortgages, weighing on growth over time.

Third, carry-trade risks rise. Low-interest currencies such as the yen are borrowed to buy higher-yielding assets. When rates reverse or exchange rates fluctuate, positions can unwind rapidly, transmitting bond-market volatility into equities, currencies and commodities. Cross-market shocks of this kind occurred in August 2024 and have appeared again recently.

When is this most likely to happen?

Long-term yields are most likely to remain elevated when sticky inflation and large fiscal deficits coincide with central-bank balance-sheet reduction and weakening bond demand. That is the current situation.

Why must we follow this closely?

This is not confined to one country. Long-term yields are rising globally, reflecting an overall increase in risk-free rates and asset discount rates. U.S. Treasuries serve as a global pricing anchor, so higher Treasury yields spill over through capital flows, exchange rates and valuation formulas. At the same time, fiscal and inflation conditions in Europe, Japan and the United Kingdom are raising their domestic yields. These forces reinforce one another.

Global yields are the central thread to follow: they are the underlying benchmark for pricing many types of assets.

This is not a crisis signal for a single country. It is a structural repricing of global financing costs already underway. The higher yields are, the greater the pressure on global assets. This indicator merits continued monitoring.