Treasury yields at their highest level since 2002. 10 reasons why investors are selling bonds

The yield on 10-year U.S. Treasury bonds rose to its highest level since 2002 amid forecasts for interest rates, according to Bloomberg. The yield on 30-year bonds also reached its highest level since 2002.

Bond yields are rising almost daily around the world, sparking debate about the reasons behind this trend and how far it might go, Bloomberg notes. More than half of the 173 respondents to the Markets Pulse survey predict that the yield on 30-year U.S. Treasury bonds will reach 6% by the end of the year.

Borrowing costs from Japan to France are also hitting new records, pushing the yield on the Bloomberg Global Aggregate Treasuries Total Return Index (a key benchmark that tracks the performance and total returns of investment-grade government bonds worldwide) to its highest level since 2000. Overall, global bonds have lost 2.7% this year, while stocks have risen 13%.

Bloomberg has identified 10 reasons why a massive sell-off of bonds is taking place in the global market.

Investors typically turn to bonds when market prospects are uncertain, notes Bloomberg. Right now, the U.S. economy continues to perform strongly, and global economic growth remains steady despite the U.S.-Iran conflict and high borrowing costs. Global business activity is strong, and manufacturing indicators in the world’s largest economies point to the strongest growth in recent years. This resilience is fueling inflation and the risk of further interest rate hikes, while also giving investors a reason to favor stocks over bonds. Inflation is detrimental to bonds because it erodes the value of the coupons and principal payments that investors will receive in the future.

“Growth remains strong, and, judging by the latest PMI (business activity) indices, it is even picking up,” said Martin Harvey, a portfolio manager at Wellington Management. — “Bonds are not a good safe-haven asset relative to stocks right now.”

The war between the U.S. and Iran triggered what Goldman Sachs called the largest oil supply shock in history. Brent prices rose to $126.41 per barrel as the conflict blocked energy flows through the strategically vital Strait of Hormuz. This, in turn, pushed up gasoline and diesel prices and kept overall price pressures high. At the same time, food prices are skyrocketing: the extreme heat of the summer of 2026 devastated crops, triggering a surge in prices.

The U.S. Federal Reserve System (Fed) raised interest rates in September, and policymakers are signaling that further rate hikes may be necessary, as inflation remains above the 2% target.

The central banks of Australia and Japan have also raised interest rates to curb inflation, and traders are now pricing in similar moves in the U.K., Canada, and Europe in the coming months.

A joint study by economists at the Bank for International Settlements (BIS), the Bank of England, and the Vancouver School of Economics has shown that approximately 90% of the total increase in 10-year bond yields since August 2020 occurred on days when U.S. labor market reports were released and Fed officials spoke. This proves that market expectations regarding the U.S. central bank’s actions remain the main driver of long-term rates.

As borrowing costs rise, homeowners are refinancing their mortgages less frequently — this increases the duration of mortgage-backed securities and forces some investors to sell Treasury bonds to offset the increased interest rate risk, Bloomberg reports.

The race to build artificial intelligence infrastructure has sparked a borrowing boom that is adding to the already massive influx of debt into the markets. This year, companies around the world have sold more than $400 billion in bonds to finance investments in technology. Most of these issuances took place in the United States. This is forcing borrowers of all types—including governments and companies financing mergers and acquisitions—to compete even more fiercely for investors’ money.

“Ultimately, this should contribute to a rise in yields on high-quality government bonds—such as U.S. Treasuries—simply because of the rapid increase in supply,” wrote Arif Hussein, head of global fixed income at T. Rowe Price.

Barclays analysts note that ongoing infrastructure spending is another reason why U.S. economic growth has remained resilient despite rising borrowing costs.

Fiscal risks are mounting amid persistent budget deficits. U.S. national debt recently exceeded $40 trillion for the first time. Countries in the Organization for Economic Cooperation and Development are expected to issue a total of $18 trillion in debt this year, which will oversaturate the markets with supply and force investors to demand higher yields for purchasing this debt.

France, for example, is among the countries whose borrowing costs have risen significantly as investors brace for next year’s elections and the potential rise to power of a populist government that could weaken fiscal discipline.

“The seemingly unstoppable rise in long-term interest rates in developed countries is yet another factor pushing a number of developed economies onto an unsustainable path of public debt,” said Catherine Neiss, deputy head of global economics at PGIM Credit.

"The lack of 'political will' to weather a recession in the U.S. means that the current rise in yields won't stop at 6%," and yields could reach 8% in the next few years, added Stephen Blitz, managing director of global macroeconomics and strategy at TS Lombard. The yield on benchmark 10-year U.S. Treasury bonds reached 5.31% on Thursday, the highest level since mid-2007.

Global military spending is at a record high, driven by the war in Iran, the ongoing conflict in Ukraine, and general trends toward rearmament within NATO, the Middle East, and Asia. The U.S. defense budget reached $1 trillion in fiscal year 2026, surpassing that threshold for the first time in history. The rise in military spending is increasing governments’ financial needs, stimulating new bond sales and putting upward pressure on yields, Bloomberg explains.

Japan is facing a problem with a weak yen, and the authorities are most likely selling foreign bonds to help remedy the situation. Data from the Ministry of Finance on reserves showed that Tokyo’s holdings of foreign securities had fallen by a record $87.8 billion at the end of August compared with the previous month. It appears that Japan was selling U.S. Treasury bonds to support its national currency.

Any further intervention would put even more pressure on global bonds, although the desire to protect bonds is considered one of the reasons why the U.S. helped Tokyo prop up the yen. The unwinding of yen-funded carry trades is also triggering a sell-off in bonds, says Ed Yardeni, president and chief investment strategist at Yardeni Research. This strategy involves borrowing yen to invest in assets with higher yields.

U.S. President Donald Trump’s ongoing trade war poses an additional inflationary risk: rising tariffs increase the cost of imported goods and threaten to keep price pressures high. This, in turn, reinforces expectations that interest rates will remain “higher for longer” and exerts additional downward pressure on bond prices.

Trade disputes are a symptom of deeper geopolitical fragmentation and an increasingly unstable global outlook—an environment in which investors are demanding higher returns to compensate for the increased uncertainty, Bloomberg notes.

In the case of U.S. Treasury bonds, the investor base is increasingly shifting away from the Federal Reserve and foreign central banks toward domestic and foreign private investors, such as hedge funds.

According to Bloomberg Economics estimates, the share of U.S. Treasury bonds held by the Fed and foreign official entities relative to U.S. GDP has fallen by approximately 12 and 8 percentage points, respectively, since 2020. Researchers at the Federal Reserve Bank of New York stated last month that, over time, the market has become “increasingly price-sensitive,” which explains “a significant portion of historical changes in yields,” according to Bloomberg.

The global savings surplus, which for decades helped keep borrowing costs low, has been exhausted, Bloomberg reports. The three forces that have driven a sustained global savings surplus since the global financial crisis—austerity measures, debt reduction in the U.S., and Chinese exports—have either faded away or been curtailed by protectionism, according to Oxford Economics. These trends are emerging at precisely the moment when governments and companies need massive amounts of capital. This is once again forcing borrowers to compete fiercely for investors’ money and pushing yields higher.

This article was AI-translated and verified by a human editor