The global bond market faced significant turbulence as rising yields in Japan, Australia, and New Zealand mirrored the selloff in German government bonds. Japan’s 10-year government bond yield surged by 6.5 basis points to reach 1.5%, the highest level observed since 2009. Meanwhile, the 40-year yield hit its highest point since 2007, and bond futures plummeted by as much as 81 ticks.
Following the selloff in Europe, the Australian and New Zealand debt markets also saw a sharp increase in yields. The benchmark 10-year government bond yields in both countries rose by around 10 basis points. In the US, Treasury yields followed suit, rising by 3 basis points to 4.31%, marking a third consecutive day of increases. French debt futures also experienced a decline, dropping from 121.78 to 121.54.
This global bond rout follows a dramatic 31-basis-point increase in the yield on the 10-year German bund, driven by the country’s revised spending plans for defense and infrastructure. Market participants are now adjusting their expectations, scaling back bets on further rate cuts by the European Central Bank (ECB). This shift in sentiment, fueled by concerns over the significant borrowing needed to finance Germany’s spending plans, has supported the euro, which saw its strongest three-day rally since 2015.
In Japan, investors are cautious ahead of Thursday’s 30-year government bond auction, which follows the global selloff. The yield on Japan’s 30-year debt rose 10.5 basis points to 2.51%, its highest level since 2008.
Masayuki Koguchi, executive chief fund manager at Mitsubishi UFJ Asset Management, noted that investors may not have anticipated such a sharp increase in German yields, and they will need to adjust their outlooks accordingly. He added that the rise in US government bond yields also contributed to a cautious atmosphere ahead of the 30-year bond auction in Japan.
Meanwhile, the bond market is also keeping an eye on US President Donald Trump’s recent comments regarding the government’s funding issues. Trump indicated that he was working on a bill to fund the government through September, amid concerns that the funding would run out next week.
Hideo Shimomura, senior portfolio manager at Fivestar Asset Management, commented on the broader economic and defense policy shifts, saying, “We are in the midst of a historic transition, and it’s difficult to adopt a bullish stance on bonds until the direction of these changes becomes clearer.”
Rising yields in Japan are also being driven by speculation that the Bank of Japan (BOJ) may continue its rate hikes. Deputy Governor Shinichi Uchida confirmed in a speech on Wednesday that the BOJ plans to gradually raise the benchmark interest rate. Keisuke Tsuruta, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities, remarked that Japan’s 10-year yield reaching 1.5% is a psychological milestone, but it may be surpassed depending on international developments. He added that the BOJ is likely to monitor both economic trends and geopolitical factors, including US tariff policies, before deciding on further rate hikes.
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