Japanese Treasuries Break 3% For The First Time In 30 Years, UK Treasuries Hits A 28-Year High, US Treasuries Approach 4.8%! Global Government Bonds Collectively "Collapse" Overnight—Why Can't This Sell-Off Stop?

On September 1, the yield on Japan's 10-year government bonds briefly rose to 3% intraday, closing at 2.996%, a 30-year high and nearly doubling compared to the same period last year. On the same day, the yield on the UK's 30-year government bond jumped 7.69 basis points to 5.8597%, the highest since May 1998; Germany's 10-year bond rose to 3.364%, the highest level since 2011; France's 10-year bond hit its highest level since 2008, while Australia's 10-year bond recorded its largest increase in five months. In the US, the 10-year government bond yield briefly broke through 4.8%, the highest since January 2025; The 30-year yield rose to around 5.29%, continuing to run in its highest range since 2007.

This time, from Tokyo to London and from Frankfurt to New York, yield curves moved up collectively on the same day, indicating that the driving force behind this sell-off is not a specific issue in one country, but a global collective force.

The Trigger Was War, And The Gunpowder Was Inflation

The first force of the joint force comes from the Middle East. Starting September 1, the U.S. Central Command launched a new round of strikes against Iran's Islamic Revolutionary Guard Corps, with Trump warning that if Iran retaliates, it will face "even fiercer, higher-level" strikes. Oil prices jumped in response, with crude oil being the most direct source of global inflation. Every step oil prices rise makes it harder for central banks to fight inflation

Inflation concerns quickly turned into bets on central banks. Federal Reserve Governor Barr stated in Washington on Tuesday: "If inflation does not appear to be easing enough, then I think we should act decisively and raise interest rates." He emphasized that U.S. inflation has been above the 2% target for nearly five and a half consecutive years, with overall CPI year-on-year at 3.7% and core CPI at 3.3%, both clearly above the long-term target. The data confirmed market unease: CME FedWatch shows the probability of a 25 basis point rate hike in September has risen to 68.2%, compared to 39.6% a week ago.

More importantly, this is not a shift by the Fed alone. Eurozone CPI rose 3.3% year-on-year in August, hitting a three-year high, and the European Central Bank is almost certain to raise rates next week; The market's market expectation for a rate hike by the Bank of Japan in September is as high as 90%, and Ueda clearly stated this morning, "Monetary conditions remain accommodating, so we hope to continue raising rates." What the global bond market is doing is to liquidate the belief that "interest rates will return to low levels," which has been repeatedly tested over the past twenty years, in a one-time liquidation.

Even More Terrifying Than Central Banks Is Fiscal Policy

If the central bank's hawkish stance determines the short-term slope of yields, then fiscal conditions determine the long-term bottom.

The total amount of U.S. Treasuries has reached $40 trillion, with annual interest payments of about $1 trillion, and the 30-year Treasury yield has risen to its highest level since 2007. The numbers don't stop there: the 30-year Treasury closed above 5% for 55 days this year, reaching a peak of 5.34% in August. The higher the yield, the heavier the interest burden, forcing the government to issue more bonds to repay old debts. Increased supply further pushes prices down and yields higher—this is a vicious cycle between fiscal policy and the bond market.

Japan's situation best illustrates the situation. A research report by Allianz Asset Management points out that Japan, long relied on an almost zero-cost funding environment to accumulate the world's largest sovereign debt, but now the market is completely abandoning this core pricing logic. Even more subtle, Japan's annual exchange rate intervention has reached 27.13 trillion yen, surpassing the historical record of 20.4 trillion yen set in 2003, and market speculation about further selling off U.S. Treasuries to raise funds remains persistent.

Corporate investors are also squeezing out government bond space. According to the Financial Times, tech giants are issuing large bonds to raise funds for the AI boom, with investors bluntly saying government bond yields are being pushed up by AI capital spending borrowing by mega-corporations. Craig Ins, head of interest rates at Royal Asset Management in London, summed up all this as a "vicious cycle": "Conflicts won't disappear, yields must account for more uncertainty, but governments still have huge borrowing needs, and you won't get any breathing room." ”

The Divide Between Bulls And Bears Is Clear

The official camp is trying to downplay it. U.S. Treasury Secretary Bescent believes that rising yields reflect more accelerated growth and stable inflation expectations, not out-of-control control. At the G20 finance ministers' meeting, he teamed up with Wash to promote the narrative of "growth debt resolution," where Wash declared the end of the "long-term stagnation" era and said "growth is an option." This narrative holds true on the premise that the economy can consistently outperform debt, and the ongoing sell-off in the bond market is precisely the market voting doubts with its feet.

The cautious camp sees the trend itself. Bill Merz, Head of Capital Markets Research at Bank of America Asset Management, said: "On days like these, the market isn't necessarily worried about yield levels themselves, but about trends—if this trend continues, it will eventually start to have a greater impact on how companies and investors value companies." ⁴ Robert Pavlik, senior portfolio manager at Dakota Wealth, warned that 4.75% is a psychological threshold "enough to make people truly start to be alert," and once yields approach 5%, concerns about a deep correction in U.S. stocks will spread rapidly.

Next, if nonfarm payrolls and CPI remain hot, with expectations for a rate hike in September or even further strengthened, the 10-year U.S. Treasury will test the 5% mark, and both stocks and bonds will continue to fall; If the data cools significantly, rate hike bets will quickly rebound, and yields are likely to fall quickly. But even so, the fiscal risk premium will not be loosened, and yields are much higher than in the past decade.