If it feels like borrowing costs just will not quit, you are not imagining it. A fresh pop in oil prices helped push the 30-year Treasury to 5.44% on Thursday, a peak not seen since 2004. Europe moved the same direction, and when Japan's market reopened after a three-day break, its government bond yields reset to levels last visited in 1996.
Step back and the picture is similar: the average yield on government bonds worldwide is sitting just shy of 4% - the highest since 2007, per Bloomberg's Global Aggregate Treasuries index. That gauge logged its steepest one-day drop since May on Wednesday as the average yield rose eight basis points to 3.99%, based on the latest available data.
In the US, Wednesday marked the first breach of 5% for the five-year note since 2007. The 10-year notched its largest single-session increase since the Liberation Day tariff jolt of April 2025. Across the Atlantic, Germany's 10-year reached 3.59%, while in Japan the 10-year rose by roughly 10 basis points to 3.09%.
It has been rough going for bond holders. Global sovereign debt has fallen about 2.4% so far this year, following a 6.8% advance last year, Bloomberg's index shows. Rate volatility is up too, with the ICE BofA MOVE Index rising Wednesday to its highest level since March.
Three forces are doing the pushing: inflation pressure tied to the war in Iran, a still-resilient US economy, and a wave of debt issuance from governments and big tech. Strong US data plus costlier oil have traders leaning toward more Federal Reserve tightening. Derivatives pricing now bakes in three quarter-point hikes over the coming year, with notable protection in place for a potential fourth.
From the outset of the US-Iran war, two-year Treasuries have risen by more than 150 basis points, while the 30-year is up by over 80. "It's rare you get a move like this in bonds," said Dave Aspell. At Mount Lucas Management LP, where he serves as co-chief investment officer, he is short 10-year bonds across the UK, Germany, Canada, Japan and the US.
Strategists at JPMorgan and KKR say yields could still push higher as energy costs, heavy borrowing, and the risk of further central-bank tightening keep working through the system. As Bloomberg's Alyce Andres put it, investors are not fleeing because they doubt inflation credibility, but because policy and term premium expectations are demanding a fatter yield cushion.
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Given those drivers, "bonds are actually behaving rationally," said Amy Xie Patrick of Pendal Group. But as TD Securities strategist Hans Mikkelsen noted, "Most fixed income will like higher yields, but want them to be stable there," and many are wary of "catching a falling knife." JP Morgan Private Bank's Grace Peters also weighed in on Bloomberg radio about the surge in global yields.
Washington's funding test is ongoing. A five-year US debt sale this week ranked as the second worst by one measure in data going back to 2018, clearing at the highest auction yield since 2006 and underscoring that servicing roughly $40 trillion in US debt is becoming more expensive.
Next up: a $44 billion seven-year note auction at 1 p.m. New York time, indicated to come near 5.05%. That would top all prior results since the maturity was reintroduced in 2009.
An hour later, Treasury will run the second expanded buyback, aiming to purchase up to $6 billion of bonds maturing in 20 to 30 years - triple the original plan. Treasury Secretary Scott Bessent broadened the buyback program in mid August to try to ease long-end pressure, but the market has not stayed calm. At the initial expanded buyback on Sept. 10, which targeted $6 billion of 10- to 20-year maturities, Treasury accepted just $5.2 billion, and the selloff intensified as skepticism mounted that buybacks can cap yields.
The politics are getting hotter too. The surge in borrowing costs is weighing on President Donald Trump in the run-up to the November midterm elections, fueling anger over expensive mortgages and living costs. He has urged that US interest rates be "1%, or less," and has lambasted what he termed a "hostile" Fed board for hiking rates earlier this month.
When the average global government bond yield is hovering near 4% and the US long bond sits at 5.44%, safer income starts to look more competitive with risk assets. The rub is the chop. With the MOVE index at a high since March and more supply hitting the market today, prices can still swing hard. As Mikkelsen said, higher yields are appealing, but investors would prefer they stop bouncing around.
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