Global Bond Selloff Drives Borrowing Costs to Multi-Decade Highs

Global government bonds experienced a significant selloff, driving borrowing costs in the United States, France, and the United Kingdom to multi-decade highs. The Federal Reserve System is now expected to implement at least three more interest rate hikes before mid-2027, as markets react to surging energy costs and inflation. The U.S. 10-year Treasury yield peaked at 5.34 percent, its highest level since 2002, before retreating to approximately 5.26 percent.

In Europe, French 10-year borrowing costs hit a 2002 peak near 5 percent as the government presents a 2027 budget bill featuring unpopular belt-tightening measures. Britain's 30-year government bond yield surpassed 6 percent, a level not seen since 1998. Japan also recorded an unprecedented fifth consecutive quarter of double-digit sovereign yield gains. The European Central Bank, having already raised rates twice this year, is expected to implement three further 25-basis-point increases by mid-2027.

Analysts attribute the rout to inflation and increased competition for capital driven by the artificial intelligence boom and data-center construction. Peter Tchir of Academy Securities warned of a global supply glut of sovereign and corporate debt, noting that systematic quant funds are driving yields higher in a low-liquidity market. Tchir specifically highlighted a divergence between German bond yields and those of France and Italy, suggesting a repricing of credit risk as France's deficit is projected to reach 5 percent, exceeding European Union targets.