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Government borrowing costs are surging on both sides of the Atlantic.
Long-term bond yields across Europe’s biggest economies hit multi-year highs on Tuesday, while the yield on 30-year US Treasuries rose to its highest level in nearly two decades.
The sell-off came as hopes of a swift resolution to the Iran conflict faded, pushing oil prices higher and renewing concerns about persistent inflation. International benchmark Brent crude traded at nearly $91 a barrel on Tuesday morning amid heightened tensions in the Middle East.
“The breakdown in US-Iran peace talks has increased the risk that energy prices remain elevated for the rest of the year, which could keep inflation higher than expected and increase the chance of central banks raising rates,” Richard Carter, head of fixed interest research at Quilter Cheviot, told Euronews Business.
Investors are increasingly betting on tighter monetary policy in the eurozone, with the ECB deposit rate expected to reach 2.76% by March 2027, up from 2.25% currently.
According to Trading Economics, investors see a 90% probability of a September rate hike by the European Central Bank (ECB).
At the same time, in the US, the 30-year Treasury yield reached 5.33%, a level not seen since 2007. In the UK, the 30-year gilt traded at 5.85% — its highest level since May 2026.
As government bonds came under renewed selling pressure globally, France’s 10-year bond yield rose to 4.10% on Tuesday morning, its highest level since June 2009.
Germany’s 10-year Bund yield, the benchmark for the eurozone, climbed above 3.25%, reaching its highest level since March 2011.
France’s 30-year bond yield reached its highest level since 2008, amid a global bond sell-off and growing concern about the country’s 2027 budget negotiations and next year’s presidential election. Germany’s 30-year bond yield rose to 3.78%, its highest level in 15 years.
Rising long-dated bond yields are not driven solely by expectations of higher interest rates and inflation fears.
“Investors are concerned about the scale of borrowing in major economies including the UK, France and Japan,” Carter continued, adding that “significant volumes of AI-related bond issuance have also added to supply, creating further pressure on prices and pushing yields higher.
Higher borrowing costs put pressure on economies and raise financing costs across a range of investments.
As government debt offices constantly raise money through bond markets, the effect of the jump in yields will gradually feed into their borrowing costs as they refinance maturing debt.
Italy is expected to refinance maturing debt equivalent to 17% of GDP in 2026, according to S&P Global Ratings, compared with 12% for France and 7% each for Germany and the UK.
For now, bond markets are likely to remain sensitive to developments in both geopolitics and economic data,” Carter said.
He added that bonds remain attractive to investors because yields are historically high and comfortably exceed inflation, offering a positive return after price rises are taken into account.