Global bond yields are climbing almost every day, sparking fierce debate in the markets: what exactly is driving this move, and how much higher can yields go? The selloff across global fixed-income markets has pushed the U.S. benchmark 10-year Treasury yield to its highest level since 2007; more than half of the 173 respondents surveyed by Markets Pulse last week predicted the U.S. 30-year Treasury yield will touch 6% by year-end. From Japan to France, borrowing costs have also hit new milestones, driving the Bloomberg Global Aggregate Treasuries Total Return Index to its highest level since 2000. Global bonds have already fallen 2.7% this year, while stock markets have gained 13% over the same period. The backdrop to this selloff is persistently elevated inflation, rising fiscal concerns, and resilient economic growth. These factors have added further pressure on bonds and left investors debating which forces are the main drivers pushing yields higher.

Torsten Slok of Apollo Global Management Inc. and others believe interest rates may "stay higher for longer." Gilles Moec, chief economist at AXA Group, said that even though some key thresholds have been breached, he does not think long-term yields have yet reached a level sufficient to bring the market to a stable footing. The following are ten reasons behind the global bond selloff:

1. Economic growth remains resilient

When the economic outlook dims, investors typically turn to bonds. But the U.S. economy remains strong, and despite the ongoing Iran war and high borrowing costs, global growth is still holding up. Global business activity is robust, with manufacturing indicators showing growth momentum in major economies at its strongest in years. This resilience not only heightens the risk of inflation and further rate hikes, but also gives investors more reason to favor stocks over bonds. Inflation is bad for bonds because it erodes the real value of the coupon payments and principal investors receive in the future.

2. Commodity prices are rising

The U.S.-Iran war has caused what Goldman Sachs calls the largest oil supply shock in history. As the conflict disrupts energy shipments through the key Strait of Hormuz, Brent crude prices briefly rose to $126.41 a barrel, driving up gasoline and diesel prices and keeping overall price pressures elevated. At the same time, food prices have also risen sharply, partly due to recent heatwaves.

3. Central banks are raising rates

The Federal Reserve raised rates in September, and policymakers signaled that further increases may be needed because inflation remains above the central bank's 2% target. The Reserve Bank of Australia and the Bank of Japan also raised rates to curb inflation, and traders now expect the U.K., Canada, and Europe to raise rates in the coming months. A recently published report found that since August 2020, about 90% of the increase in nominal 10-year yields occurred around the release of nonfarm payroll reports and speeches by key Fed officials, indicating that the market's view on the direction of short-term rates is a major factor driving yields. As borrowing costs rise, homeowners refinance less, lengthening the duration of mortgage-backed bonds and forcing some investors to sell U.S. Treasuries to offset the resulting increase in interest-rate risk.

4. Hyperscaler borrowing and AI infrastructure buildout

The race to build AI infrastructure has set off a borrowing boom, further increasing the supply of bonds flooding the market. Companies worldwide have issued more than $400 billion in bonds this year to fund technology investments, with a large share in the United States. This forces all types of borrowers to compete more fiercely for investor funds, including governments and companies raising money for mergers and acquisitions. Arif Husain, global head of fixed income at T. Rowe Price, which oversees $1.9 trillion in assets, wrote that the surge in supply alone should ultimately push up yields on high-quality government bonds such as U.S. Treasuries. Barclays analysts noted that the resulting infrastructure spending is another reason the U.S. economy remains resilient even as borrowing costs rise.

5. Fiscal deficits and debt

Budget deficits in various countries remain persistent, and governments lack the willingness to truly address the problem, raising fiscal risks. U.S. debt recently surpassed $40 trillion for the first time. Total borrowing by OECD member countries this year is expected to reach $18 trillion, flooding the market with bond supply and prompting investors to demand higher yields before taking on the debt. In France, for example, borrowing costs have risen sharply as investors position for next year's election and the possibility that a populist government could loosen fiscal spending. Katharine Neiss, deputy global head of credit economics at PGIM Credit, said long-term rates in developed markets appear to be climbing without end, making debt burdens in several developed economies increasingly unsustainable. In the U.S., Steven Blitz, managing director of global macro and strategy at TS Lombard, said that given the lack of political will to endure a recession, the current rise in yields will not end at 6% and could even reach 8% in the coming years.

6. Defense spending

Driven by the U.S.-Iran conflict, the ongoing war in Ukraine, and a broader trend of rearmament across NATO, the Middle East, and Asia, global military spending has hit record highs. The U.S. fiscal 2026 defense budget reached $1 trillion, surpassing that threshold for the first time in history. Higher military spending increases government financing needs, prompting more bond issuance and further pushing up yields.

7. The Japan effect

Japan is facing a weak yen, and authorities are likely selling foreign bonds to support the currency. Data on the Ministry of Finance's foreign exchange reserves showed that as of the end of August, Japan's holdings of foreign securities had plunged by $87.8 billion from the previous month, a record drop, suggesting Japan may be selling U.S. Treasuries to support the yen. Any further intervention would add more pressure on global bonds; however, it is widely believed that one reason the United States is helping Japan support the yen is precisely to avoid a shock to U.S. Treasuries. Meanwhile, Ed Yardeni, president and chief investment strategist at Yardeni Research, said the unwinding of yen-funded carry trades is also driving this bond selloff. Such trades involve borrowing in yen and reinvesting in higher-yielding assets. He wrote that as Japanese rates rise, carry traders are being forced to sell government bonds they had bought around the world using funds from cheap yen borrowing.

8. Trade wars

U.S. President Donald Trump's trade war continues unabated, adding a layer of inflation risk; higher tariffs raise the cost of imported goods and may keep price pressures elevated. This in turn further strengthens expectations that rates will stay higher for longer, putting more upward pressure on bond yields. Trade disputes are also a sign of deepening geopolitical fragmentation and an increasingly unstable global outlook. In such an environment, investors demand higher yields to compensate for greater uncertainty.

9. A changing bondholder base

For U.S. Treasuries, the buyer base is shifting increasingly from the Federal Reserve and foreign central banks toward domestic and overseas private investors such as hedge funds. By one estimate, since 2020, the share of U.S. Treasuries held by the Fed and by foreign official institutions as a percentage of U.S. GDP has fallen by about 12 percentage points and 8 percentage points, respectively. Researchers at the Federal Reserve Bank of New York said last month that the market has become increasingly price-sensitive, which can explain a substantial portion of past yield movements.

10. The end of the global savings glut

Finally, the global savings glut that helped hold down borrowing costs for decades has come to an end. Oxford Economics said that since the global financial crisis, the three major forces that created a persistent global savings glut have either reversed or been constrained by protectionism, including fiscal austerity, U.S. deleveraging, and Chinese exports. Just as these trends are emerging, governments and companies need huge amounts of capital, once again forcing borrowers to compete fiercely for investor funds and pushing yields even higher.