Global Bond Yields Surge to 2008 Crisis Levels Amid Debt Concerns

Global government bond markets witnessed a significant sell-off this week, with long-term bond yields surging to levels not seen since the 2008 financial crisis. Investors' concerns over rising debt levels across various countries, coupled with the uncertain outlook for U.S. tariffs, have fueled the selling pressure. The 30-year U.S. Treasury bond, in particular, faced heavy selling, contributing to the overall market turmoil. The pound sterling also saw its largest single-day decline since June 17, adding to the global market volatility. The sell-off in the bond market reflects growing apprehension about the economic outlook and the potential impact of rising interest rates on government finances. As investors reassess their positions, the bond market's performance will continue to be a critical indicator of broader economic sentiment.

On Tuesday, the yield on the 30-year UK government bond reached 5.69%, the highest level since at least 2006. Similarly, the 30-year bond yields in Germany and the Netherlands rose to 3.4% and 3.57% respectively, marking their highest levels since 2011. France's 30-year bond yield hit 4.49%, the highest since 2009. In Japan, the 30-year bond yield, which had reached its highest level since at least 2006 the previous week, fell back to 3.206%.

In the world's largest bond market, the United States, the 30-year Treasury yield approached 5% during Tuesday's trading session, reaching 4.997%. This level has not been seen since 2006. The decline in bond prices, which pushes up yields, also means that holders who sell now would face significant paper losses. The turmoil in global bond markets is driven by a combination of factors. Germany's significant increase in government spending, coupled with the U.S. tax cuts for the wealthy, has heightened market concerns about the expansion of government borrowing. Additionally, political instability in France, the UK, and Japan has further raised investor doubts about the ability of these governments to address their debt issues.

France's National Assembly is scheduled to vote on a motion of no confidence in the government's debt reduction plan on September 8. The global head of economics and thematic research at a major bank warned that investors are concerned that political deadlock could make fiscal tightening more difficult, which is particularly worrying given France's current deficit levels. In the United States, the federal government's budget deficit for the current fiscal year is projected to be 1.7 trillion dollars, slightly lower than the 1.83 trillion dollars projected for the 2024 fiscal year but still at a high level. More concerning is the uncertainty surrounding tariff revenue, which could further widen the deficit.

Last Friday, a U.S. appeals court upheld a May ruling by the U.S. Court of International Trade that certain tariffs imposed by the Trump administration were illegal. If tariff revenue decreases or needs to be refunded, the deficit will increase further, putting additional pressure on long-term U.S. Treasuries. Data shows that from April to July this year, U.S. tariff revenue reached 94.4 billion dollars, compared to 24 billion dollars in the same period last year. The Trump administration repeatedly cited projections from the Congressional Budget Office that tariffs would help reduce the deficit by 400 billion dollars between 2025 and 2035. However, market analysts caution that tariff revenue is not sufficient to significantly alter the overall fiscal situation and that the increased costs could squeeze corporate profits and tax revenue.

The robust consumer spending data released by the U.S. last week also contributed to the rise in long-term Treasury yields. Strong economic performance typically encourages investors to sell safe-haven bonds and shift to higher-risk assets like stocks. Meanwhile, historical data keeps the market cautious. Long-term bonds tend to perform poorly in September. Over the past decade, the iShares International Treasury Bond ETF, which tracks long-term overseas bonds from countries like Japan and France, has averaged a 1.46% decline in September. The iShares 20+ Year Treasury Bond ETF, which tracks long-term U.S. Treasuries, has averaged a 2.6% decline during the same period.