Global Bond Yields Soar as Energy Prices Fuel Inflation Fears

Global bond yields have reached new highs as rising energy prices and renewed fighting in the Middle East stoke inflation fears. Japan's 10-year benchmark bond yield has hit 3% for the first time in a generation, while the US 10-year Treasury yield broke resistance at 4.75% to stand at 4.78%, its highest since early 2025.

The rise in borrowing costs has been global, with French and German debt yields also reaching new highs. At 3%, Japan's 10-year borrowing cost now sits at the government's assumed long-run funding cost, putting real pressure on sovereign finances already strained by Prime Minister Sanae Takaichi's spend-to-grow agenda.

Ryutaro Kimura, a senior strategist at BNP Asset Management in Tokyo, described the upward march of Japanese borrowing costs as 'a sense of resignation - tinged with helplessness'. Higher oil prices and rising U.S.-Iran tensions are stoking worries about inflation, which is negative for bonds.