Global Sell-Off of Government Bonds
The month of September 2026 saw a massive sell-off in global government bonds starting at the end of August and accelerating into September. Indeed, by the 2nd of September, many governments were seeing an increase in their costs of borrowing as the global sell-off showed no signs of slowing down. Analysts advised that Japan’s 10-year bond yield hit 3.00% for the first time since 1996, which was a bit of a milestone considering the economy was emerging from a period of ultra-low interest rates.
In the United Kingdom, 10-year government bonds/gilts yields accelerated to just under 5.30%, its highest level since June 2008. Experts within the government bond arena advised that investors had been dumping bonds due to inflation fears and spiralling deficits. In France, the government was experiencing its highest borrowing costs since the GFC (Global Financial Crisis 2007 – 2009) with the 10-year government bond yield hitting 4.14%, its highest level since 2008 with public debt exceeding 118% of GDP*.
*European Union rules state that member states must keep annual budget deficits (net borrowing) below 3.00% of GDP, and total public deficit debt below 60.00% of GDP.
Throughout September, global government bonds continued their sell-off, and in the fourth week, yields on 5 to 30-year US Treasuries hit multiyear highs with the 30-year treasury hitting just under 5.50%, the highest since 2005. Once again, the sell-off was highlighted by investors’ concerns regarding increasing government debt and inflation fears, plus a fresh jump in oil prices. Indeed, one expert noted that since the start of the war with Iran on 28th February 2026, one of the main drivers of treasury yields had been the price of oil.
Recently, borrowing costs within the Eurozone spiralled on the back of the 10-year US Treasury yield rising by 0.50% to 5.34%, a level last seen at the beginning of the 21st century. Many experts advise that the US government bond market, currently valued at circa $32 trillion, is an anchor for global finance. Recently, selling in the US Treasury market spread to Europe and the United Kingdom, where the yield on the 30-year gilt climbed to just over 6.00%—its highest level since 1998.
Elsewhere in Europe, the Italian 10-year government bond saw yields up 0.50% to 4.69% with analysts advising government bonds within the eurozone were suffering from spillovers due to sell-offs in French government bonds. Indeed, French government bond (OAT*) yields recently hit their highest levels since 2002. A severe sell-off drove the 10-year yield close to 4.96%, pushing the yield spread over German Bunds past the 140–150 basis point mark – its widest margin since the 2012 Eurozone debt crisis.
*Obligations assimiliables du Tresor (OATs) are the primary medium and long-term sovereign debt instruments issued by the French government. These bonds are managed by the AFT (Agence France Tresor) and serve as the foundation bedrock for financing France’s state expenditure. Standard OATs are issued with fixed maturities ranging anywhere from 2 – 50 years.
Global government bonds are experiencing a high volatility sell off, pushing sovereign yields across developed economies to their highest levels in over twenty years. This dramatic rout is driven by a potent mix of surging energy prices stemming from the US/Iran/Israel conflict in the Middle East, ballooning government debt, and on-going inflation fears. Whilst yields have significantly spiked, which are offering long-term income investors an attractive entry point, current elevated bond volatility is disrupting broader financial markets, forcing a global re-evaluation of central bank rate paths.
Experts predict structural macroeconomic pressures will keep global sovereign bond yields elevated for the foreseeable future. They predict a return to the ultra-low rates of the 2010 – 2020 era is unlikely to return given the current fiscal realities.
