Global bond selling intensified on Tuesday, pushing sovereign debt yields across the United States, Europe and Asia to historically elevated levels as escalating military tensions in the Middle East combined with persistent hawkish signals from central banks, accelerating the retreat from fixed income assets.
In the United States, Treasury yields rose across maturities as markets repriced expectations for interest rates and inflation risks. The two year Treasury yield touched 4.354%, its highest level since 2025, as securities that are particularly sensitive to monetary policy expectations came under heavy selling pressure.
The US 10 year Treasury yield also climbed to 4.780%, reaching its highest level since 2025, while the 30 year yield advanced to 5.273%, its highest level in more than a week, as investors demanded a larger term premium to hold longer maturity government debt.
Pressure in the US bond market quickly spread to global debt markets. In Europe, Germany’s two year bond yield rose for a fifth consecutive session to 2.936%, its highest level since July 2024, while the German 10 year yield climbed to 3.352% and the 30 year yield reached 3.841%, with both moving to their highest levels since 2011.
In France, the 10 year government bond yield advanced to 4.15%, its highest level since November 2008.
Across Asia, Japan’s benchmark 10 year government bond yield jumped to 3.000%, its highest level since late 1996, while the Japanese two year yield reached a record 1.800%.
The global bond selloff reflects a significant change in market dynamics. Sovereign bonds are no longer behaving as traditional safe haven assets during periods of geopolitical stress. Instead, investors are selling government debt as they price in the risk of persistent inflation and stagflation, driven by higher energy costs and continued price pressures.
Pressure on bond markets intensified following direct military strikes between the United States and Iran in the Gulf region, including missile attacks involving targets on Larak Island and retaliatory strikes against US bases in Jordan. The escalation pushed crude oil prices above $90 per barrel.
Higher energy costs feed directly into headline inflation, encouraging fixed income investors to demand higher yields for holding longer maturity bonds amid concerns that inflation could remain elevated through 2027.
Selling gathered additional momentum following comments from Federal Reserve Chair Kevin Warsh at Jackson Hole, where he indicated that central banks still have unfinished work in bringing inflation under control.
Money markets subsequently repriced expectations for US interest rates, with the probability of a 25 basis point Federal Reserve rate increase in September rising to around 60%.
In Europe, expectations are also growing that the European Central Bank could raise interest rates again, while the Bank of Japan is facing increasing pressure to tighten monetary policy at its next meeting.
At the same time, governments around the world continue to issue record amounts of debt to finance higher defense spending, energy transition projects and widening fiscal deficits. Japan has requested a record budget of 143 trillion yen, while France continues to face growing pressure from its public debt burden.
This increase in bond supply comes as central banks reduce the size of their balance sheets through quantitative tightening, making it more difficult for private investors to absorb new government debt without requiring significantly higher yields.
With yield curves showing different patterns of steepening and flattening across major markets, investors are now closely watching upcoming economic data for clues about the next phase of monetary policy.
Markets are awaiting August inflation figures from the euro area, with expectations that the data could confirm continued pressure in core inflation and strengthen the case for further tightening by the European Central Bank.
In the United States, the Job Openings and Labor Turnover Survey and the nonfarm payrolls report will be closely watched as investors assess the likely direction of the Federal Reserve’s next interest rate decision.
These developments come as financial markets become increasingly sensitive to rising oil prices and bond yields. Persistent inflation could force central banks to keep interest rates elevated for longer, increasing pressure on both equity and bond markets and keeping borrowing costs at historically high levels.
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