A powerful sell-off in government bonds is sending a warning through the global economy. The yield on ten-year US Treasury bonds has risen to levels not seen since 2002, reflecting investors’ concerns about inflation, energy prices, government borrowing and the future direction of interest rates.
The pressure is particularly visible in Europe. French bonds have suffered sharp volatility amid political uncertainty and growing concern about the country’s budget deficit and public debt. The gap between French and German ten-year borrowing costs has reached its widest level since 2011, showing that investors increasingly regard French debt as carrying greater risk.
Rising bond yields affect far more than financial markets. They increase the cost of mortgages, business loans, infrastructure projects and government debt servicing. Highly leveraged sectors—including commercial property, technology infrastructure and businesses dependent on refinancing—are particularly exposed.
The world is entering a new financial environment in which governments can no longer assume that money will remain cheap. If yields stay elevated, countries may be forced to reduce spending or increase taxes, while companies could postpone investment and recruitment. The bond-market shock is rapidly becoming one of the most important threats to global economic growth.