--- title: "Global Long-Term Bond Yields Surge: Fiscal Deficits, AI-Driven Issuance, and the Exit of Traditional Buyers Fuel a \"Rate Revaluation\"" type: "News" locale: "en" url: "https://longbridge.com/en/news/296193695.md" description: "The global long-term bond market is undergoing a rare systemic repricing, with yields in the US, Europe, and Japan hitting multi-year highs! Soaring government deficits and massive debt issuance by AI giants have unleashed a \"supply flood,\" while the exit of traditional buyers and inflation concerns have completely disrupted the supply-demand balance in the bond market. This global interest rate storm is sharply pushing up borrowing costs and coldly declaring that, barring a sudden recession or external shock, the era of high long-term rates is unlikely to have peaked" datetime: "2026-08-18T08:01:45.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/296193695.md) - [en](https://longbridge.com/en/news/296193695.md) - [zh-HK](https://longbridge.com/zh-HK/news/296193695.md) --- # Global Long-Term Bond Yields Surge: Fiscal Deficits, AI-Driven Issuance, and the Exit of Traditional Buyers Fuel a "Rate Revaluation" From Washington to Tokyo, the global long-term bond market is experiencing a systemic repricing. **The expansion of fiscal deficits, large-scale corporate financing driven by the artificial intelligence investment boom, and the structural exit of traditional buyers are combining to push up long-end interest rates, placing governments and investors under the most severe borrowing cost pressure in decades.** **This week, the 30-Year Treasury Yield touched 5.32%, its highest level since 2007, after staying above the 5% mark for 30 consecutive trading sessions.** Meanwhile, France's 30-year government bond yield rose to a high not seen since 2008, Germany's equivalent yield climbed to 2011 levels, UK gilt yields approached 6%, and Japan's 30-year government bonds neared their peak since 1999. According to data compiled by Bloomberg, the average yield of a benchmark portfolio of investment-grade government bonds has risen to nearly 4.5%, the highest since data collection began in 2015. This rise in interest rates has transmitted to the real economy, pushing up mortgage and corporate credit costs. Anshul Pradhan, Head of Interest Rate Strategy at Barclays, stated bluntly that maintaining an optimistic view on the long end requires multiple conditions to be met simultaneously, including fiscal contraction, a slowdown in AI-related debt issuance, adjustments to Treasury issuance strategies, and softer economic data. "We have consistently advised against betting lightly on the end of the long-end selloff, and this stance remains unchanged." ## Supply Flood: Government Borrowing and AI Giants Compete for Financing **One of the direct drivers of rising long-end interest rates is the sustained surge in bond supply.** The U.S. federal government's annual U.S. Fiscal Deficit is approaching $2 trillion, keeping treasury issuance volumes high. Year-to-date in the U.S. fiscal year, public debt interest expenditures have reached $1.17 trillion, a 15% increase from the same period last year, partly due to rising treasury yields. At the same time, the corporate bond market is equally hot: according to Bloomberg data, as of August 17, U.S. high-grade bond issuance in August had reached $145.2 billion, exceeding the monthly record of $136 billion set in August 2020. The cumulative issuance volume this year is 8.5% higher than the same period in 2020. Tech companies are the core force behind this wave of issuance. The largest single transaction in August came from Alphabet, with an issuance size of $25 billion. So far this year, there have been eight U.S. investment-grade bond issuances reaching or exceeding $25 billion, all from tech companies. Corporate financing is also extending overseas—Alphabet plans to issue its first Australian dollar-denominated bonds, sized at A$5 billion (approximately $3.6 billion). JPMorgan recently raised its forecast for 2026 USD bond issuance by technology, media, and telecommunications companies by about 20% to $540 billion, indicating that supply pressure will continue. **The large-scale duration supply has pushed up the term premium required by the market—that is, the extra return investors demand for holding long-term bonds relative to short-term bonds. Gerard MacDonell, an economist at 22V Research, pointed out, "The larger the debt volume, the more duration supply the bond market needs to digest; all else being equal, the term premium will rise accordingly." Bloomberg data shows that the term premium has risen to 0.83%, nearing the upper edge of recent highs.** ## Buyer Exit: Structural Demand Gap Hard to Fill As supply surges, traditional long-term bond buyers are systematically retreating, further exacerbating the supply-demand imbalance. In the past, institutional investors such as pension funds were the most stable buyer group in the long-term bond market, needing to match long-term assets with liabilities. Today, as more pension systems shift from defined benefit to defined contribution plans, and regulatory environments encourage funds to increase their equity allocations, this traditional source of demand continues to shrink. A larger structural shift is occurring at the sovereign debt level. **The minutes from the Federal Reserve's June policy meeting revealed that officials noted a shift in treasury holders from "official institutions relatively insensitive to price" to "private investors more sensitive to price." Anshul Pradhan of Barclays stated that "official demand is mainly driven by policy objectives," while "private investors are more sensitive to returns." He estimates that this shift in buyer structure over the past decade has increased the term premium on 30-Year Treasuries by approximately 90 basis points.** This means that even if short-term data improves, long-end interest rates are unlikely to see a trend decline—the structural demand gap constitutes a "floor support" for rising yields. ## Inflation Concerns Reignite: Oil Prices Become Core Pricing Variable In addition to supply-demand imbalances, the rebound in inflation expectations is another key factor suppressing the bond market. Recent data shows that the 10-day correlation coefficient between WTI crude oil and the 30-Year Treasury Yield has risen to 0.85, whereas around July 23, the correlation coefficient was close to zero. Shriya Samarth, Head of EMEA Rates at StoneX, believes this shift indicates that oil prices are becoming a core variable for the market to judge the direction of inflation, rather than a short-term disturbance—oil price trends are signaling to the market that "inflation will persist in some form for the long term." Notably, this round of yield increases is not driven solely by inflation expectations. Bloomberg reported that long-term breakeven inflation rates—an indicator reflecting market expectations for future inflation—remain relatively stable in most major markets. The main driver of rising interest rates comes from the climb in real yields. Naka Matsuzawa, macro strategist at Nomura Securities, pointed out in a report that the U.S. 10-year real yield has risen to 2.44%, while the Breakeven Inflation rate (BEI) has also risen to 2.29%, with both moving higher in tandem. Ian Lyngen, Head of U.S. Interest Rate Strategy at BMO Capital Markets, pointed out that **"even though the overall trajectory of macro data has improved, the market is unwilling to significantly push down yields,"** and the energy sector **"remains a potential catalyst for further declines in the bond market."** ## Global Resonance: Spreading from the US to Europe and Japan This rise in long-end interest rates has evolved into a global phenomenon, with major markets showing linked movements. In Europe, France's 30-year government bond yield hit a new high since 2008, with the market closely watching the fiscal direction of the 2027 budget negotiations and the next presidential election; Germany may need to pay the highest cost in nearly 15 years for its 30-year joint bond issuance on Tuesday, as its financing needs continue to rise; UK gilts were impacted after Prime Minister Andy Burnham made statements seeking fiscal flexibility, with 30-year UK gilt yields approaching 6%. Japan's situation is particularly noteworthy. Although absolute yield levels remain lower than in other major economies, the continuous rise in Japanese government bond yields has sparked market concern. The 30-year Japanese government bond yield is near its highest level since 1999, reflecting market doubts about the Bank of Japan's slow actions—against the backdrop of the BOJ gradually reducing its bond purchases and persistent inflationary pressures, the steep yield curve shows that the market believes the policy normalization process is lagging. **Prashant Newnaha, Senior Interest Rate Strategist for Asia-Pacific at TD Securities, warned that "Japan was supposed to be the anchor of global interest rates; further rises in Japanese bond yields will increase the risk of global duration repricing."** Nomura's Naka Matsuzawa pointed out in a report that the current 2-year forward overnight index swap (OIS) rate for 5-year Japanese government bonds has risen to 2.27%, approaching the upper limit of the neutral interest rate range estimated by the Bank of Japan (1.1% to 2.5%), while market concerns about the Bank of Japan falling behind the curve have not fully dissipated. ## How the Market Should Respond In the view of analysts, the continuous rise in yields brings risks but also creates potential entry opportunities for some investors. Kelsey Berro, fund manager at JPMorgan Asset Management, stated that long-end bonds, especially those with real yields, have shown "relative attractiveness." "If risk assets experience some volatility, the correlation between duration assets and portfolios will provide support for investors." Strategists at Yardeni Research believe there is currently no reason to press the "panic button" on the U.S. treasury market. However, pessimistic views are also well-founded. Nohshad Shah, Head of Fixed Income Sales for EMEA at Citadel Securities, pointed out that although policy rates are 175 basis points below their peak, long-end yields remain near 20-year highs. "This reflects the market's judgment: whether it is the Federal Reserve or fiscal authorities, they tend to take the easier path when faced with difficult choices. As long as this expectation persists, it will pose a risk to the entire market." 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