TOKYO/LONDON/SINGAPORE (Sept 1): A sell-off in global bond markets deepened on Tuesday, with Japan's 10-year yield hitting 3% for the first time since 1996, the latest manifestation of trader angst about energy-driven inflation, monetary tightening and worsening fiscal conditions.

The rout took in major economies from the US to Germany as well as Britain, where bond yields surged 10 basis points, playing catch-up with global moves after Monday's UK public holiday.

British and eurozone yields hit fresh over-10-year highs as the Middle East crisis stoked price pressures globally, driving market bets that central banks will raise interest rates soon.

A deluge of bond sales from big tech companies aggressively raising money to fund the artificial intelligence (AI) boom, in an environment where the US debt load has passed US$40 trillion (RM162 trillion), has exacerbated government bond selling in recent weeks. Yields rise when bond prices fall.

Governments are jittery, and last month the US Treasury stepped into markets in a bid to cap a rise in borrowing costs. Still, 30-year Treasury yields have already started climbing again.

The scale of the global shift is underscored by the rise in 10-year Japanese government bond (JGB) yields to 3% for the first time in 30 years, something seen as practically ‌unthinkable until recently after over a decade of massive central bank debt purchases kept rates artificially low.

The rise in US and Japanese yields reflects inflation and fiscal worries, said Tai Hui, the Asia-Pacific chief market strategist of JPMorgan Asset Management.

"The stalemate in the Middle East risks pushing energy prices higher...meanwhile, few actions have been taken to consolidate fiscal deficits in both economies."

Brent crude rose nearly 2% to over US$92 a barrel on Tuesday and European natural gas prices were at their highest since March, after Monday saw the first exchange of direct attacks between the US and Iran in a month.

For Japan in particular, higher yields increase the cost of servicing the developed world's biggest debt pile at a time when Prime Minister Sanae Takaichi is planning aggressive investment. Five-year JGB yields hit a record high 2.26%.

But the move in yields is very much a global story, and causing problems for governments around the world.

US 10-year Treasury yields pushed to the highest since January 2025 at 4.798%, while the 30-year yield was at 5.27% just six basis points shy of levels before August's intervention.

Germany's 10-year yield was at 3.35%, its highest since 2011, as data showed eurozone inflation rose above 3% in August, cementing bets on a September European Central Bank rate rise, while Britain's 10-year gilt yield rose to 5.25%, its highest since 2008.

Analysts noted some different forces at play as global borrowing costs rise.

"In Europe and the UK it is more because of heightened inflation expectations, while in the US the upticks in long-end yields are still more driven by higher real yields although inflation expectations have been creeping up too," said Frances Cheung, OCBC's head of foreign exchange and rates strategy.

Real yields are the returns that a bond investor demands above inflation, an indicator of true borrowing costs for governments and companies, and can be affected by several factors, including long run economic growth.

US Treasury Secretary Scott Bessent shrugged off worries about the bond market in an interview with Reuters on Sunday, saying the effect of higher energy prices would fade and higher yields ⁠reflected confidence in the economy.

Michiel Tukker, a senior rates analyst at ING, said it did appear that growth in the US and elsewhere in the world was pushing up real yields.

"Combine that with the deficit story, and a lot of supply [of debt] and you could argue that things don't look that stretched yet. Real rates are still on par or even a bit below pre-2008 levels," he said.

"There's no easy turnaround...and if you ask who will take the other side of this trade (betting yields will fall), that's difficult to see."

And the global story can become self-reinforcing, since higher yields in one market can push them up elsewhere.

Australian 10-year yields notched their sharpest rise in five months on Tuesday, in part due to fears higher JGB yields would mean fewer Japanese buyers of Australian debt.

Further Japanese yield rises could drive a gradual reallocation into Japanese assets, said TD Securities senior rates strategist Prashant Newnaha.

"It's a genuine regime change. JGBs were the anchor for global fixed income for a long time," he said.

"Now it has flipped."

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