Borrowing costs climb worldwide after data on US economy emerges

Bond investments have endured a turbulent week, with yields around the world climbing to their highest levels in decades. Bond market volatility has risen at its fastest pace in months amid a massive sell-off, raising concerns among investors that the turbulence could spill over into stock markets.

The 30-year yield on US Treasury bonds, issued by the government in Washington, climbed as high as 5.5% on September 24, its highest level since 2004. The increase came a day after a sharp bond sell-off followed new S&P Global data showing robust US business activity in September alongside elevated inflation driven by higher energy prices, as American media outlets reported.

Because economies around the world are closely linked to the US economy and currency, rising US Treasury yields serve as a global benchmark, increasing borrowing costs, weighing on asset valuations and tightening financial conditions worldwide.

The rise in bond yields has been a global phenomenon. Ten-year yields in France and Germany climbed to their highest levels in roughly 15 years, while Japan’s 10-year yield rose to 3.08%, a level not seen since 1996.

“Every major bond market’s feeling the heat at once,” Nigel Green, CEO at deVere Group, said in an official note.

Yields rise when bond prices fall. The sell-off has rattled global bond markets and pushed yields higher as traders adjust to the possibility that central banks could raise interest rates.

At the beginning of the year, some Wall Street analysts expected the Federal Reserve to have room to cut rates in 2026. However, the energy shock caused by the war with Iran, combined with a resilient economy, has changed that outlook. The two-year yield, which tracks expectations for Fed policy, has risen from 3.48% at the start of the year to 4.93% this month.

The surge in energy prices following the closure of the Strait of Hormuz has renewed inflationary pressures across economies worldwide, prompting central banks to shift their outlooks toward prioritizing rate increases.

Oil prices also climbed on September 24, with the front-month Brent crude futures contract settling 3.41% higher at $106.60 per barrel. The increase is adding to inflation pressures and contributing to higher yields.

Brent climbed as high as $108 per barrel earlier in the day before retreating after news emerged that US and Iranian negotiators had discussed a possible path toward reopening the Strait of Hormuz. The price fell to around $104 per barrel following the report before recovering to $106.60.

On the same day, the US Treasury Department bought back roughly $4.08 billion in long-term bonds in the second of a series of expanded buyback operations first announced in August. The purchases are intended to improve liquidity in the longer-term Treasury market, but they have done little to contain the rise in yields. Investors say market fundamentals point to long-term yields remaining elevated for longer.

Stocks fluctuated as traders digested headlines surrounding the conflict in the Middle East. The S&P 500 ended the day down just 0.02%, while the Nasdaq Composite gained 0.01%. Stocks had fallen the previous day as rising bond yields put additional pressure on the market.

By Nazrin Sadigova