--- title: "Overseas Long-Term Bonds \"Breaking Out on All Fronts\" – Is the Developed World's \"Fiscal Ponzi Scheme\" No Longer Sustainable?" type: "News" locale: "en" url: "https://longbridge.com/en/news/286845108.md" description: "Barclays states that long-term government bond yields in the UK, Japan, the US, and France have simultaneously surged to multi-decade highs. This is not an isolated risk for any single country but a collective manifestation of a \"fiscal Ponzi scheme,\" where debt growth consistently outpaces economic growth. With expanding defense expenditures and persistent sticky inflation, foreign central banks are shifting to increase their gold holdings, while private investors demanding higher premiums are taking over long-term bonds. Unless the economy cools abruptly or fiscal paths credibly shift, the low-interest financing model of the high-debt era faces a thorough market repricing" datetime: "2026-05-19T02:44:02.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/286845108.md) - [en](https://longbridge.com/en/news/286845108.md) - [zh-HK](https://longbridge.com/zh-HK/news/286845108.md) --- # Overseas Long-Term Bonds "Breaking Out on All Fronts" – Is the Developed World's "Fiscal Ponzi Scheme" No Longer Sustainable? Long-term bonds in developed nations are collectively losing ground. What the market is repricing is not a fiscal surprise in any one country, but the reality of coexisting high debt, high deficits, and even higher interest rates: **When debt growth consistently outpaces economic growth, the so-called "fiscal Ponzi scheme" becomes increasingly difficult to sustain through low-interest rollovers.** In the past week, the yield on UK 30-year government bonds rose to 5.82%, the highest since 1998; Japan's 30-year government bond yield touched 4%, marking the highest level since the instrument was established in 1999; the US 30-year Treasury yield broke above 5% for the first time since 2007; and France's 10-year government bond yield stood at 3.8%, also returning to highs not seen since 2007. According to Zhuifeng Trading Desk, Ajay Rajadhyaksha, Head of Fixed Income, FX, and Commodities Research at Barclays, wrote in a report on May 18: "Long-term bonds were not just sold off last week; they broke out of their ranges everywhere." His core judgment is that **debt growth is faster than economic growth, the inflation trajectory is worsening, and there is a lack of political will for fiscal reform. Even though long-term bonds have already fallen, there is insufficient reason to extend duration.** This means that a 5% yield on US 30-year Treasuries is not a natural ceiling. What might truly alleviate pressure on long-end interest rates is not immediate central bank intervention, but a series of significantly weakening economic data or a credible adjustment in fiscal paths. Currently, neither has emerged. ## Collective Breakout in Long-Term Bonds, Investors Flee Duration A decline in a single country's bond market can usually be attributed to domestic inflation, fiscal conditions, politics, or central bank communication. However, the simultaneous breakout in the UK, Japan, the US, and France indicates that the market is trading more than just local risks. The commonalities are clearer: Debt ratios in major developed economies are generally above 100% of GDP, and fiscal deficits are not covered by nominal growth. The US deficit is approximately $2 trillion, equivalent to 6.5% of GDP, while nominal growth is around 4.5% to 5%. France's nominal GDP year-on-year growth for the quarter ending March 2026 was 2.2%, with a deficit of about 5%. The UK's deficit exceeds 4%. This is precisely the core contradiction pointed to by the term "fiscal Ponzi scheme": **Governments continuously rely on new debt and refinancing to maintain spending, but the speed of debt expansion exceeds economic growth, while interest costs are becoming expensive again. As long as this combination remains unchanged, long-term bonds will require higher yields to attract buyers.** New spending is adding further pressure. NATO agreed in The Hague last year to raise the defense spending target to 5% of GDP by 2035; European defense spending already achieved double-digit percentage growth last year and may continue to rise for another decade; and the US government has requested $1.5 trillion in defense appropriations from Congress for the next fiscal year. These expenditures are not offset by corresponding cuts. ## Energy Shocks Exacerbate Inflation and Fiscal Ratchets Debt and deficits were already fragile, and energy price assumptions are further tightening policy space. The baseline assumption is that the average price of Brent crude oil will reach $100 in 2026, a 50% increase from the 2025 average. This will directly worsen the inflation outlook and compress the space for central banks to cut rates, potentially even forcing them to hike rates. Higher interest rates mean that interest expenses on existing debt will continue to rise; rising interest expenses, in turn, make it harder to reduce deficits. This is not a sudden, single-point crisis, but rather resembles a fiscal ratchet: with each turn forward, the government has less room to maneuver, and bond investors demand higher compensation. ## Japan's 4% Long-Term Bond Yield Changes the Low-Interest Rate System A 4% yield on Japan's 30-year government bonds is not extreme by US or UK standards, but it holds different significance for the Japanese market. Over the past 20 years, long-term interest rates in Japan have been close to zero, and the asset-liability structures of pension funds, insurance companies, and regional banks have been built around this environment. The Bank of Japan's policy rate is currently 0.75%. During the April monetary policy meeting, 3 out of 9 board members opposed the current stance; market pricing shows a 77% probability of a rate hike in June. Even if the Bank of Japan raises rates to 1%, real interest rates will remain significantly negative. The rise in Japan's long-end yields can be interpreted as monetary policy normalization: the end of deflation, growth in real wages, and a return to a more normal economic state. **However, the issue is that for an economy with a debt scale exceeding twice its GDP, interest rate normalization may not be gentle. A 4% yield on 30-year Japanese government bonds is not just a change in yield figures, but a repricing of the entire low-interest financial system.** ## The Core Challenge for the UK and France is the Political Difficulty of Reducing Deficits The UK Labour government has a working majority of over 150 seats in the 650-seat Parliament, theoretically possessing the capacity for fiscal adjustment. However, last summer, savings of merely £1.4 billion involving winter fuel subsidies triggered a backlash within the Labour parliamentary party. Political pressure is intensifying. Ninety-seven Labour MPs have demanded the Prime Minister's resignation or a timetable for departure. Main challenger Andy Burnham previously argued that fiscal policy should not succumb to the bond market, later clarifying that he would not completely ignore investors. The UK has had four Prime Ministers and five Chancellors of the Exchequer in the past four years. Meanwhile, bond market pricing indicates that the Bank of England has more than 60 basis points of room for rate hikes by year-end, although Governor Bailey may prefer to wait and see. France's problem is not as eye-catching as UK gilts, but its fiscal structure is equally thorny. France has changed Prime Ministers five times in less than three years. The current government has survived two votes of no confidence to push through a budget targeting a deficit rate of 5% of GDP, but whether this target can truly be achieved remains questionable. The 2023 reform raising the retirement age to 64 is under attack, yet 64 is still lower than in most Western economies. France's deficit is already significantly higher than nominal GDP growth, voters strongly punish austerity attempts, and constitutional arrangements make it easier for parliament to block spending cuts. **The result is that everyone knows the deficit must decrease, but no one is willing to bear the political cost of making it decrease.** ## US 30-Year Treasury Breaks 5%, Buyer Structure is Changing The yield on US 30-year Treasuries breaking above 5% is the first time since 2007. The direct causes are not new: rising inflation, fiscal expansion, and high deficits. The US federal deficit is approximately $2 trillion. The Congressional Budget Office (CBO) expects the ratio of federal debt held by the public to GDP to rise from the current level of over 100% to 120% by 2036. However, materials point out that this forecast may still be overly optimistic. One key variable is tariff revenue. The effective US tariff rate has dropped from a high of 12% to 7%-8%, below the CBO's assumption of 15%. Even if it eventually rises to 10%, tariff revenue over the next decade would only be about 60% of the $3 trillion deficit reduction scale assumed in their projections. Assumptions for defense spending and interest costs may also be too low. The US dollar's status as a reserve currency remains a structural advantage for the US, allowing it to finance at interest rates difficult for other countries with similar debt levels to obtain. However, this does not mean a 6.5% deficit rate is sustainable. **More importantly, the marginal buyer has changed. Foreign central banks were once stable buyers of duration assets, but after the West froze Russian foreign exchange reserves, central bank allocations shifted toward gold.** Last year, gold's share in central bank reserves exceeded that of US Treasuries. Japan, the largest holder of US debt, also finds its domestic market interest rates more attractive. The Federal Reserve is still in a state of balance sheet reduction. Now, those taking over long-term bonds are private investors who are more price-sensitive and demand higher term premiums. ## Central Banks Are Not the "Fuse" for Long-Term Bonds Debt management agencies have relatively reduced long-term bond issuance in recent years and may continue to adjust issuance structures in the future. However, this can only alleviate supply pressure, not change the direction of fiscal policy and inflation. There is discussion in the market about whether the Federal Reserve will be forced to restart large-scale asset purchases to prevent long-end interest rates from continuing to rise. However, Warsh's previous statement on the Fed's balance sheet was that "the bloated balance sheet can be significantly reduced." This is not language suggesting preparation for a US version of yield curve control. Therefore, the current situation cannot simply be defined as a bond crisis. But the forces driving the sell-off—fiscal deterioration, increased defense spending, sticky inflation, and constrained central banks—will not disappear in a week or two. The rise in long-term bond yields to yearly highs is not, in itself, a sufficient reason to buy duration. Unless economic data weakens significantly or there is a credible change in fiscal paths, long-term bonds in developed countries are still trading on the same issue: the low-interest financing model of the high-debt era is being repriced by the market. ### Related Stocks - [600489.CN](https://longbridge.com/en/quote/600489.CN.md) - [KGC.US](https://longbridge.com/en/quote/KGC.US.md) - [601899.CN](https://longbridge.com/en/quote/601899.CN.md) - [AEM.US](https://longbridge.com/en/quote/AEM.US.md) - [BARC.UK](https://longbridge.com/en/quote/BARC.UK.md) - [GOLD.US](https://longbridge.com/en/quote/GOLD.US.md) - [BCS.US](https://longbridge.com/en/quote/BCS.US.md) - [NEM.US](https://longbridge.com/en/quote/NEM.US.md) - [600547.CN](https://longbridge.com/en/quote/600547.CN.md) - [518850.CN](https://longbridge.com/en/quote/518850.CN.md) - [GDXY.US](https://longbridge.com/en/quote/GDXY.US.md) - [GDX.US](https://longbridge.com/en/quote/GDX.US.md) - [GDXJ.US](https://longbridge.com/en/quote/GDXJ.US.md) - [GDXW.US](https://longbridge.com/en/quote/GDXW.US.md) - [GOEX.US](https://longbridge.com/en/quote/GOEX.US.md) - [GOAU.US](https://longbridge.com/en/quote/GOAU.US.md) - [SGOL.US](https://longbridge.com/en/quote/SGOL.US.md) - [02824.HK](https://longbridge.com/en/quote/02824.HK.md) - [RING.US](https://longbridge.com/en/quote/RING.US.md) - [GLDM.US](https://longbridge.com/en/quote/GLDM.US.md) - [SGDJ.US](https://longbridge.com/en/quote/SGDJ.US.md) - [GDXJ.UK](https://longbridge.com/en/quote/GDXJ.UK.md) - [09824.HK](https://longbridge.com/en/quote/09824.HK.md) - [GLD.US](https://longbridge.com/en/quote/GLD.US.md) - [IAU.US](https://longbridge.com/en/quote/IAU.US.md) - [GDXU.US](https://longbridge.com/en/quote/GDXU.US.md) - [SGDM.US](https://longbridge.com/en/quote/SGDM.US.md) - [NUGT.US](https://longbridge.com/en/quote/NUGT.US.md) - [UGL.US](https://longbridge.com/en/quote/UGL.US.md) ## Related News & Research - [PRECIOUS-Gold drops 2% as rising yields, dollar, sap appeal; inflation woes linger](https://longbridge.com/en/news/286545868.md) - [PRECIOUS-Gold falls with MidEast war in focus after Trump pauses strike](https://longbridge.com/en/news/286878933.md) - [PRECIOUS-Gold edges higher from over 1-1/2-month low but higher yields cap gains](https://longbridge.com/en/news/286745980.md) - [$1000 Invested In SPDR Gold MiniShares Trust 5 Years Ago Would Be Worth This Much Today](https://longbridge.com/en/news/286819467.md) - [PRECIOUS-Gold at over one-week low as dollar, yields climb, Middle East tensions stoke inflation](https://longbridge.com/en/news/286580039.md)