Global bond selloff deepens as yields near multi-decade highs, equities under pressure

A broad sell-off in government bonds accelerated this week, driving borrowing costs to multi-year highs across developed economies and raising fresh alarms over the sustainability of public debt and the outlook for equities.

The yield on the U.S. 10-year Treasury note climbed to 4.78% on Tuesday, its highest in 20 months, according to one report, while another source put the level at 4.80%, the highest since early 2025. Both reports note the yield’s rapid rise is part of a global phenomenon: Japanese and U.K. benchmark yields have also reached multi-decade highs. In the U.K., the 10-year gilt yield hit 5.14%, approaching levels not seen since the 2008-2009 financial crisis. The German 10-year bund reached 3.35%, the highest in more than 15 years.

The moves are pressuring equity markets as investors reassess the cost of capital. “We’re heading into the concern zone, which is the other side of 5% for the 10-year Treasury … where alarm bells would begin to ring,” said Padhraic Garvey, regional head of research for the Americas at ING, in remarks reported by SCMP. Garvey said the current levels are not a mispricing but would become a tipping point if the U.S. 10-year yield rises past 5% and the euro zone 10-year yield reaches between 3.5% and 4%.

Garvey added that the main driver behind the Treasury yield increase is higher real yields rather than higher inflation expectations. That is particularly worrying for U.S. companies because they cannot raise prices to offset the impact. As investors wake up to that risk, the implication for risk assets, including stocks, “could be significant,” he said, as future earnings must be discounted at a structurally higher real yield.

Why yields are climbing

Several forces are pushing yields higher. The Globe and Mail reports that annual U.S. government budget deficits remain elevated above pre-pandemic levels, forcing the Treasury to borrow more. Large technology firms are also tapping debt markets heavily to fund data centers for artificial intelligence. Meanwhile, last Friday, Federal Reserve Chair Kevin Warsh signaled that the central bank may still need to raise its short-term rate in the coming months if inflation stays stubbornly high.

Renewed fighting in the Middle East has pushed oil prices higher, stoking inflation worries. Investors typically demand higher yields when inflation is high or expected to worsen. In the euro zone, inflation jumped to 3.3% in August, the highest in three years, according to the European Union’s statistical agency, as reported by the Globe and Mail. That has led investors to expect the European Central Bank to raise its short-term rate at its next meeting.

Robin Brooks, a senior fellow at the Brookings Institution, told the Globe and Mail that the global sell-off traces back to pandemic-era stimulus. “You’re dealing with a global sell-off which goes back to this kind of global stimulus that we had during COVID. The chickens for that are now coming home to roost.” Brooks also noted that rising global instability from wars in Ukraine and Iran is adding to investor unease.

Policymakers take notice

The sell-off has drawn the attention of top officials. Treasury Secretary Scott Bessent addressed the G20 finance ministers and central bankers this week in Asheville, North Carolina, where he said the United States was a leader in addressing sovereign debt issues in emerging markets and low-income countries, as reported by SCMP. In a separate conversation with Fox Business host Larry Kudlow on the sidelines of the G20 meeting, Bessent downplayed the rise in U.S. yields. “I don’t think we are in any kind of a dire situation,” he said, adding that other countries’ bonds have seen bigger yield increases.

Yet Bessent last month announced an unusual intervention in the bond market to restrain rising yields, a move that Brooks said likely kept longer-term rates lower than they would otherwise be. “You should care because this stuff under the surface is really bubbling,” Brooks said. “And you can tell it is because policymakers are starting to get pretty agitated.”

Impact on consumers and markets

Rising bond yields translate directly into higher borrowing costs for households and businesses. The 10-year Treasury yield strongly influences mortgage rates; the Globe and Mail reports that the average 30-year fixed-rate mortgage is near its highest level in a year, discouraging potential homebuyers. The 5-year Treasury yield, a benchmark for auto loans, touched its highest level since October 2025.

Higher yields also pressure stocks, gold, and cryptocurrencies, because safer U.S. Treasurys now offer a more attractive return. The logic: why pay a high price for risky assets when government bonds pay more? Garvey warned that the eventual realization that corporate earnings must be discounted at higher real yields will weigh on equities.

The sell-off is a sharp reminder that the bond market can force policy changes. “Rising bond yields are one of the few forces in the world strong enough to get politicians to snap to attention,” the Globe and Mail noted. For now, yields remain below the most aggressive “alarm bell” thresholds, but the trend is testing those levels.