Global Bond Rout Pushes U.S. Borrowing Costs to 24-Year High

A global selloff in government bonds pushed the yield on the 10-year U.S. Treasury to 5.34% on Thursday, October 1—its highest level since 2002, according to Reuters.

The yield later fell back as some investors returned to the market. On Friday, it was around 5.25%, Reuters reported. The movement shows how quickly borrowing costs can change as investors reassess inflation, interest rates and the amount of debt governments may need to issue.

Bond prices and yields move in opposite directions: when investors sell bonds, their prices fall and their yields rise. The 10-year Treasury yield is closely watched because it influences borrowing costs across the U.S. economy, including mortgage rates and some business loans.

Why bond yields are climbing

Investors have been concerned that higher energy prices could keep inflation elevated. If inflation proves persistent, central banks may keep interest rates higher for longer—or raise them further—making existing bonds with lower returns less attractive.

Government finances are another source of concern. Investors are weighing large borrowing needs and budget deficits in major economies. More bond issuance can add to competition for buyers, especially when investors are already demanding higher returns.

The rapid growth of artificial-intelligence projects and data centres is also increasing demand for capital. Reuters reported that this competition for funding, together with expectations of stronger economic growth, has contributed to pressure on bond markets.

The selloff has not been limited to the United States. Reuters reported that government borrowing costs in countries including France and Japan also reached multi-year highs, while Britain’s 30-year government bond yield rose above 6% on Thursday.

What it could mean for households and governments

Higher Treasury yields can feed through to higher mortgage and loan rates, although lenders’ rates do not move in perfect step with the 10-year yield. Businesses may also face higher financing costs when issuing debt or borrowing to expand.

Governments can face increased costs when they issue new debt or refinance maturing bonds. Higher interest payments can leave less room in public budgets for other priorities. Existing government bonds do not automatically become more expensive to service just because market yields rise; the effect builds as debt is refinanced or new borrowing takes place.

Markets are watching U.S. economic data for clues about the Federal Reserve’s next steps. The direction of inflation, employment and economic growth could affect expectations for interest rates—and, in turn, bond yields.

Although the Treasury yield eased from its peak on Friday, the global bond market remains sensitive to economic data, energy prices and governments’ borrowing plans.