Global Bond Yields Soar, Stocks Plunge Amid Sovereign Debt Fears

Global bond yields have stabilized at their highest levels in decades, causing stock markets to sink worldwide. The U.S. and European stock futures fell by about 0.2% in the Asia session, while Japan's Nikkei dropped 3.3% and South Korea's KOSPI slid nearly 6%. The selloff is attributed to concerns over swelling sovereign debt, which has pushed borrowing costs higher.

The U.S. long bond yield steadied at around 5.27%, after hitting its highest level in nearly 20 years on Tuesday at 5.3371%. German and French debt futures also remained stable after a selloff that took German 10-year and 30-year yields to their highest since 2011, and lifted French 30-year yields by nearly 50 basis points since June.

National Australia Bank's chief economist Sally Auld warned that if the bond sell-off continues, it could become challenging for other asset classes such as property, equities, and infrastructure. The climb of Japan's benchmark 10-year sovereign yield towards 3% is also a warning sign for global debt markets.

The inflation outlook remains troubling, with Brent crude futures parked above $90 a barrel on no signs of progress toward a deal to open the Strait of Hormuz. Debt demand is being stretched by skyrocketing sales by AI hyperscalers, including Alphabet, Google's parent, which is reportedly seeking around A$5 billion ($3.5 billion) through an Australian-dollar bond sale.

The U.S. Federal Reserve will release minutes from its July meeting on Wednesday, where it left rates on hold. The minutes may provide clues about the central bank's response to persistent inflation.