- Global Bond Selloff Spreads as German Spending Plans Shake Markets
Japan’s government bond yields have surged to their highest levels in over a decade, reflecting the broader turmoil sweeping global debt markets. The 10-year Japanese government bond (JGB) yield climbed 6.5 basis points to 1.5%—a level not seen since 2009—while the 40-year yield reached a record high since its introduction in 2007. The selloff in Japanese bonds came in response to rising yields in German bunds, which have sent shockwaves across global markets.
The rout has extended beyond Japan, with bond yields in Australia and New Zealand also surging. Australia’s and New Zealand’s 10-year yields each increased by about 10 basis points. Meanwhile, in the United States, the yield on the 10-year Treasury note rose 3 basis points to 4.31%, marking its third consecutive day of gains. French debt futures also took a hit, slipping to 121.54 from 121.78.
The rapid selloff in German bunds, where the 10-year yield spiked as much as 31 basis points, has been attributed to a shift in the country’s fiscal policy. The German government has announced plans for significant spending increases in defense and infrastructure, prompting a reassessment of bond market valuations. Additionally, expectations of further rate cuts by the European Central Bank (ECB) are now being scaled back, adding to the volatility.
Japan’s bond market faces additional uncertainty ahead of a key 30-year government bond auction scheduled for Thursday. The yield on 30-year JGBs jumped 10.5 basis points to 2.51%, the highest level since 2008, raising concerns that demand at the upcoming auction may be weaker than expected.
“Investors may not have expected developments to this extent in Germany, and they will need to reconstruct their views going forward,” said Masayuki Koguchi, executive chief fund manager at Mitsubishi UFJ Asset Management. “The impact of the large rise in German yields yesterday was very strong, and US government bonds were also sold, so there is a sense of caution about the 30-year bond auction today.”
The sudden repricing of bonds highlights how interconnected global debt markets have become. Rising yields in one major economy often trigger reactions across the world, as investors adjust their portfolios accordingly.
The selloff in bonds is part of a broader shift in global economic policies. The German government’s decision to ramp up spending on defense and infrastructure signals a departure from its traditionally conservative fiscal approach. This has led investors to anticipate higher borrowing needs and, consequently, higher yields.
“We are now in the middle of a historical shift in economic and defense policies,” said Hideo Shimomura, senior portfolio manager at Fivestar Asset Management Co. in Tokyo. “We can’t be bullish on bonds until we see the direction of that shift.”
The impact is also being felt in currency markets. The euro has posted its strongest three-day rally since 2015, as traders react to the evolving policy landscape in Europe.
In the United States, Treasury yields have been climbing amid rising concerns over fiscal policy. Traders are closely watching developments in Washington, where President Donald Trump recently posted on social media about the risk of US government funding running out next week. The president stated that he is working on a bill for a continuing resolution to fund the government until September.
Uncertainty around US fiscal policy has been a recurring theme in recent months, with debt ceiling debates and government shutdown risks periodically rattling markets. Rising bond yields indicate that investors are demanding higher compensation for holding long-term government debt amid these uncertainties.
The Bank of Japan (BOJ) is another factor driving Japan’s rising bond yields. Investors are speculating that the central bank will continue raising interest rates, particularly after Deputy Governor Shinichi Uchida signaled that the benchmark rate remains on a gradual upward trajectory.
“The 1.5% on Japan’s 10-year yield is a psychological milestone, but it’s not particularly a barrier, and it may be broken depending on overseas factors,” said Keisuke Tsuruta, a senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities. “The BOJ will probably continue to watch economic and price trends and Trump’s tariffs, while waiting for the right moment to raise rates.”
The BOJ has maintained ultra-loose monetary policy for years, but with inflation picking up and global central banks tightening policy, pressure is mounting for Japan to follow suit. The recent rise in JGB yields suggests that markets are increasingly pricing in the possibility of further rate hikes.
With bond yields climbing across multiple regions, investors are grappling with an environment of heightened volatility. The sharp rise in yields, particularly in Germany and Japan, is forcing market participants to reassess their expectations for future central bank policy and government borrowing needs.
If the BOJ signals a more aggressive tightening stance, JGB yields could climb even further, adding pressure on Japanese debt markets.
US Fiscal Policy Developments
Uncertainty around US government funding and potential changes to fiscal policy could drive further fluctuations in Treasury yields.
The ECB’s stance on interest rates will be critical in shaping bond market movements in Europe. Any indications of delayed rate cuts could keep yields elevated.
Market Reaction to Germany’s Spending Plans
As investors digest the implications of Germany’s fiscal shift, further adjustments in European bond markets could spill over into global debt markets.
Upcoming Government Bond Auctions
The results of key auctions, such as Japan’s 30-year bond auction, will provide insight into investor appetite for long-term government debt in this new rate environment.
The surge in Japanese government bond yields to their highest levels in more than a decade underscores the broader turmoil in global debt markets. Driven by a sharp selloff in German bunds, rising government spending expectations, and shifting central bank policies, bond yields across major economies are climbing.
As the market braces for Japan’s 30-year bond auction and closely watches policy signals from the BOJ, ECB, and the US government, investors are navigating an increasingly complex environment. The coming weeks will be critical in determining whether the current bond rout stabilizes or continues to deepen.
For now, caution remains the dominant sentiment, as traders weigh the risks of higher borrowing costs, shifting fiscal policies, and potential monetary tightening across the world.
