Bond Markets Slump as Inflation Fears and Fiscal Pressures Mount

Government bond markets worldwide are experiencing selling pressure as inflation and fiscal concerns take hold. Long-term borrowing costs from the US to Japan have risen to their highest levels in decades, with benchmark yields reaching nearly 3% in Japan for the first time in three decades.

In the US, 30-year Treasury yields hit their highest since 2007 at around 5.32%, up almost 40 basis points from last month's data. This significant increase has put a spotlight on investor appetite for government debt amidst rising fiscal deficits.

The market is demanding a higher term premium for holding long-duration government debt, according to Charu Chanana, chief investment strategist at Saxo Bank in Singapore. The competition for capital from AI hyperscalers and the potential for the Federal Reserve under new chief Kevin Warsh to hike interest rates also contribute to the recent selling.

The rising bond yields have a ripple effect on economies as sovereign debt sets the benchmark for borrowing costs for corporates and other loans such as mortgages. Foreign holdings of US Treasuries slid in June, with Japan being the largest foreign holder of US bonds.