Japanese government bond (JGB) yields surged, with the benchmark 10-year yield hitting 3.055%, its highest level since August 1996. This increase, which saw an 8 basis point rise, was primarily a reaction to a significant sell-off in US Treasury bonds, which pushed the US 10-year Treasury yield as high as 5.13%.
The global bond sell-off was fueled by strong US economic data, persistent inflation concerns, and a rise in oil prices above $100 per barrel. Analysts noted a "correlated move higher in yields" globally, indicating that there is "no escape" from the rising borrowing costs for governments. The market is now pricing in a 70% chance of a Federal Reserve rate hike at its next meeting, up from 50% earlier in the week.
The weaker yen exacerbated inflation concerns in Japan, contributing to the upward pressure on JGB yields. Despite interventions by US Treasury Secretary Scott Bessent to prop up the yen and buy back longer-dated Treasuries, the yen remained weak, trading around ¥158 to the dollar. The Bank of Japan's perceived lack of tightening compared to the hawkish Fed is seen as a key factor in the yen's struggle.
The rise in bond yields globally poses a significant concern for countries' public finances, with the OECD warning about increasing borrowing costs at a time of aggressive government spending. Germany, for instance, expects its federal borrowing to reach a record €525.5 billion in 2026. The 30-year US Treasury yield also climbed to 5.48%, its highest since 2004, indicating widespread pressure across sovereign debt markets.
