Global bond selloff drives borrowing costs to multi-decade highs

Anabelle Colaco
05 Oct 2026, 02:25 GMT+10

Borrowing costs across major economies climbed to levels not seen in decades on September 30 as another wave of selling swept global bond markets, although bargain buying later helped U.S. Treasuries recover some losses
The benchmark U.S. 10-year Treasury yield, a key reference point for global borrowing costs and asset prices, climbed to 5.34 percent, its highest since 2002
The 10-year yield had already recorded its biggest quarterly increase this century in the three months through September

LONDON, UK: Borrowing costs across major economies climbed to levels not seen in decades last week as another wave of selling swept global bond markets, although bargain buying later helped U.S. Treasuries recover some losses.

The benchmark U.S. 10-year Treasury yield, a key reference point for global borrowing costs and asset prices, climbed to 5.34 percent, its highest since 2002. It later retreated to around 5.26 percent as Treasury yields across the curve declined.

The 10-year yield had already recorded its biggest quarterly increase this century in the three months through September.

Bond yields, which move inversely to prices, have risen globally as surging energy costs fuel inflation. The boom in artificial intelligence and data-center construction has also increased competition for capital and raised expectations for economic growth and where short-term interest rates will eventually settle.

"As yields have crept higher, that is going to tighten financial conditions and could increase the risk of a slowdown," said Danny Zaid, portfolio manager at TwentyFour Asset Management in New York.

"But fundamentals right now, the broader economy, still look very strong even though we do know that we have a K-shaped economy and the lower cohort has been suffering for quite some time and there is need for relief from higher oil prices."

Higher interest rates increase financing costs for companies and mortgage borrowers while forcing governments to spend more on interest payments.

Pressure extended well beyond the United States. French 10-year borrowing costs reached their highest since 2002, trading close to five percent, as the government prepared to present a 2027 budget bill that could struggle to win parliamentary support for belt-tightening measures.

The gap between French and German 10-year borrowing costs was around its highest since the euro zone debt crisis of the 2010s, while the cost of insuring French debt against default reached its highest since 2013.

Britain's 30-year government bond yield climbed above 6 percent, its highest since 1998. In Japan, sovereign yields recorded an unprecedented fifth consecutive quarter of double-digit gains.

The Institute of International Finance recently estimated that advanced economies paid more than US$3.3 trillion in interest on internationally traded government bonds over the past year.

Factory activity across Europe and Asia expanded last month, helped by AI-related investment, giving central banks less reason to worry about the effects of tighter policy.

"Stronger growth has encouraged markets to conclude that the economy can sustain higher rates for longer," said Julius Baer fixed income analyst Afonso Borges.

Traders have reversed earlier expectations for U.S. interest-rate cuts this year. After last month's rate hike, markets now expect at least three more Federal Reserve hikes before mid-2027. However, cooler U.S. inflation data on September 30 reduced expectations for another near-term increase.

European inflation data this week has been hotter than expected. The European Central Bank has raised rates twice this year, while markets are pricing in three further 25-basis-point increases by mid-2027.