G7 Bond Market Stress Deepens as Borrowing Costs Surge

Government bond markets across the Group of Seven economies are experiencing significant stress as long-term borrowing costs reach their highest levels in over two decades. Driven by rising inflation, geopolitical tensions involving Iran, elevated oil prices nearing $100 per barrel, and growing fiscal concerns, investors are increasingly avoiding long-dated government debt. In the United States, 30-year Treasury yields have crossed 5%, while Britain’s gilt yields hit highs not seen since the 1990s, and Japan faces record-high yields amid policy tightening. The surge reflects fears that central banks will maintain higher interest rates for longer to combat inflation exacerbated by global energy shocks. Additionally, the Federal Reserve’s balance sheet reduction and competition from corporate AI infrastructure debt are weakening demand for Treasuries. Although global stock markets remain strong, masking some severity, analysts warn that sustained bond market stress could threaten global financial stability. Governments may shift toward shorter-term debt, potentially increasing future refinancing risks. This situation marks a fundamental shift away from the era of ultra-low interest rates, impacting major economies including the US, UK, Japan, France, and Germany.