The global bond sell-off intensified on Monday as government bond yields climbed across the US, Europe and Japan, while investors increased bets on further interest-rate hikes. Morgan Stanley strategist Marina Zavolock said the rise in yields is still “nowhere near problematic” for equities, according to Bloomberg.
US 30-year Treasury yields reached their highest level since 2004, while the 10-year yield moved above 5% for the first time since 2007. Morgan Stanley’s chief European equities strategist said rising growth expectations are currently outweighing the pressure created by higher global borrowing costs.
US and European bond yields climb
Germany’s 10-year Bund yield rose to around 3.63%, its highest level since 2009, extending its weekly gains to seven consecutive weeks. The move came as Brent crude approached $106 a barrel following renewed tensions around the Strait of Hormuz.
The European Central Bank raised its three key interest rates by 25 basis points on September 10, saying the Middle East conflict was creating inflation pressures. The ECB projected average euro-area inflation of 3.0% for 2026.
Morgan Stanley expects two more Federal Reserve rate hikes this year. The Fed itself raised its target range by 25 basis points on September 16 to 3.75%-4%, citing elevated inflation. Its September projections put 2026 PCE inflation at 3.7%.
Japan faces rising inflation pressure
Japan’s two-year government bond yield climbed to 1.975%, its highest level since 1995, as selling pressure spread through the bond market. The yen weakened to 157.70 per dollar, increasing pressure on the Bank of Japan as investors assess the possibility of another rate increase as soon as October.
Minutes from the BOJ’s July 30-31 meeting showed members supporting continued policy-rate increases as inflation risks remained elevated. The BOJ later raised its policy rate to 1.25% in September.
Former BOJ executive director Kazuo Momma put the probability of an October rate increase at 20%-30%, according to Bloomberg. Markets are also pricing a growing chance of another BOJ hike, while analysts expect the central bank to revise its inflation forecasts at its October 29-30 meeting.
The latest moves highlight how higher energy prices and inflation concerns are keeping central banks under pressure even as bond yields rise sharply across major markets.
Q1. What is driving the global bond sell-off?
Higher inflation concerns, rising energy prices and expectations of further interest-rate increases are driving selling pressure across major bond markets.
Q2. What happened to US Treasury yields?
The US 30-year Treasury yield reached its highest level since 2004, while the 10-year yield moved above 5% for the first time since 2007.
Q3. What did the Federal Reserve do in September 2026?
The Federal Reserve raised its target federal funds rate by 25 basis points to 3.75%-4% on September 16.
Q4. How high did Japan’s two-year government bond yield rise?
Japan’s two-year government bond yield rose to 1.975%, its highest level since 1995.
Q5. What did the ECB do in September 2026?
The ECB raised its three key interest rates by 25 basis points on September 10.
