US 10-year yield hits 5.34% intraday; UK 30-year tops 6%; France 10-year nears 5%

Advanced economies' annual bond interest costs top $3.3 trillion, surpassing global AI, defense and clean energy spending combined

The New York Stock Exchange [Reuters]
The New York Stock Exchange [Reuters]

A deepening global selloff in government bonds pushed long-term yields in the United States, the United Kingdom and France back to their highest levels in decades.

The yield on the 10-year US Treasury note — the benchmark for global borrowing costs — climbed as high as 5.34% during trading Thursday (local time), surpassing the 24-year high it had set earlier that day, according to Reuters and other reports.

The UK's 30-year gilt yield rose to 6.029% intraday, while France's 10-year yield reached 4.963%, edging close to the 5% threshold. Those levels represent the highest for each country since 1998 and 2002, respectively.

Bond prices and yields move in opposite directions: as selling pressure intensifies, prices fall and yields rise.

Some buyers stepped in, viewing the price declines as a buying opportunity, pulling yields slightly off their peaks — but yields across major economies remained elevated.

Analysts attributed the surge to a combination of factors: inflationary pressure from rising energy prices, stronger-than-expected economic growth, surging demand for capital driven by AI and data center investment, and widening fiscal spending by governments.

Government bond yields have been on a steep upward trajectory in global markets in recent weeks.

Fred Neumann, HSBC's chief Asia economist, said financial markets are "in the process of finding where the new long-term interest rate anchor will settle."

He said markets are responding to years of inflation running above central bank targets, adding that "bond markets will demand a premium for long-term borrowing until monetary tightening actually takes hold."

The surge in long-term yields is also rapidly increasing the interest burden on governments.

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

That figure exceeds estimated global spending on AI at $2.6 trillion, defense at $3.1 trillion and clean energy at $2.3 trillion — surpassing all three categories.

The US Treasury has been expanding its buyback program to support liquidity in the bond market.

The Treasury said Thursday it received $46.39 billion in offers during a buyback operation targeting bonds with maturities of 10 to 20 years, and purchased $6 billion of them.

While the Treasury has described the program as a liquidity-support measure, some market observers have suggested it may also be intended to ease upward pressure on long-term yields.

Rising yields are adding to the financing burden not only for governments but also for businesses and households.

According to government-backed mortgage company Freddie Mac, the average rate on a 30-year fixed mortgage in the United States jumped to 7.28% this week from 7.03% the previous week, a rise of 0.25 percentage points.

That was the largest weekly increase in four years, since October 2022.

In the UK, data released Thursday showed home price growth slowing to its weakest pace in about two years, adding to evidence that high interest rates are weighing on the real economy.

However, the shock to equity markets has been relatively contained compared with the sharp selloff in bonds.

Stronger-than-expected economic growth, solid corporate earnings and expanding AI-related investment have continued to support share prices.


mokiya@heraldcorp.com