Sovereign debt plummets as inflation fears push yields to multi-year peaks

A relentless global sovereign bond selloff extended into its sixth consecutive session on Wednesday, driving borrowing costs across Europe, Asia, and North America to multi-year and multi-decade peaks. Investors are increasingly concerned about military escalation in the Middle East, higher energy prices, persistent inflation, corporate debt issuance linked to artificial intelligence, and continued central bank hawkishness. In Europe, Germany’s two-year Schatz yield rose for a sixth straight day to 2.983%, its highest level since 2024. Germany’s 10-year Bund yield climbed to 3.370%, its highest level since 2011, while the 30-year yield advanced to 3.845%, also reaching a 2011 high. France’s 10-year OAT yield rose to 4.244%, reaching levels not seen since the 2008 global financial crisis as fiscal deficits added to rate pressures. The bond selloff also spread across Asia-Pacific markets. Australia’s 10-year government bond yield jumped to 5.205%, its highest level since 2011, following stronger GDP data and hotter inflation that increased expectations for another Reserve Bank of Australia rate hike. Japan’s 10-year government bond yield remained above 3.000%, its highest level since 1996, marking a major shift from decades of ultra-low Japanese borrowing costs. Geopolitical tensions are also reshaping the traditional safe-haven trade. Direct U.S.-Iranian military exchanges and uncertainty surrounding the Strait of Hormuz have pushed oil prices above $90 a barrel. Higher energy prices could feed into transportation and consumer costs, creating additional inflation pressure and making it more difficult for central banks to cut interest rates. Another major factor is the growing supply of corporate debt. Technology companies and multinational corporations are issuing large amounts of bonds to finance artificial intelligence infrastructure, data centers, and semiconductor procurement. This corporate borrowing is competing with government bonds for institutional capital while central banks continue quantitative tightening. The combination of heavy sovereign and corporate debt issuance, elevated oil prices, persistent inflation concerns, and hawkish central bank expectations is forcing investors to demand higher yields. Markets are therefore watching upcoming economic data and central bank decisions closely for signs of whether the global bond selloff will continue.