The global long-term bond sell-off continues, and the finances of many countries are flashing red lights. Be vigilant about your assets!
2025-09-04 15:18:50
On Thursday (September 4th), spot gold prices retreated over 1% from their highs during the Asian and European trading hours, snapping a seven-day winning streak. This rapid pullback in gold prices was attributed to profit-taking following the recent surge to record highs. Coincidentally, global bond markets have recently experienced a series of sell-offs, with interest rates surging. The rise in gold prices and the sell-off in bonds are signaling potential dangers. Even if they don't immediately trigger systemic risks, they are a wake-up call for the capital markets, which have seen lucrative returns in recent years. While global bond markets have stabilized slightly after the sharp drop, long-term yields have still reached new highs, and fiscal concerns around the world remain a dark cloud that shows no sign of dissipating.
While major global bond markets stabilized overall on September 3rd, Japan's market came under significant pressure due to political upheaval and fiscal concerns. After Japanese Prime Minister Shigeru Ishiba's ally, Liberal Democratic Party Secretary-General Hiroyuki Moriyama, resigned, market concerns about Japan's political stability intensified , directly pushing the yield on Japan's 30-year government bond to a record high well above 3% on Wednesday.
Although global bond markets have halted their short-term decline, the surge in Japan's long-term borrowing costs highlights the market's lack of confidence in its fiscal sustainability.
The bond markets of Britain and France were the first to experience sharp fluctuations on Tuesday. Although they eased slightly on Wednesday along with the global bond markets, the deep pressure has not been relieved.
UK: UK government bond yields rose sharply on Tuesday, and the British pound plummeted. The previous Monday, British Prime Minister Keir Starmer reshuffled his senior advisory team and wanted to directly intervene in the fiscal budget . Against the backdrop of high debt and slow economic growth in the UK, fiscal challenges have once again become the focus of the market.
On Wednesday, the UK's 30-year government bond yield briefly rose to around 5.75%, its highest level since 1998. Although it ended the day down 7 basis points (due to some stabilization in the bond market), long-term pressure remains. Furthermore, the UK government confirmed on Wednesday that it will announce its budget on November 26th. Investors are still speculating that the budget may include tax increases, which could further depress the UK's already weak economic growth.
France: French government bond yields also rose sharply on Tuesday, with the core conflict centered on the conflict between fiscal reform and political maneuvering. To advance his debt reduction plan, French Prime Minister Francois Bayrou announced a confidence vote on September 8th. Markets generally expect him to lose the vote , signaling a potential setback for France's debt reduction efforts and further exacerbating fiscal pressures.
Zachary Griffiths, head of investment grade and macro strategy at CreditSights, said: "The renewed global focus on the fiscal outlook seems to happen every few weeks. The UK and France were in the spotlight yesterday."
Besides the UK and France, bond markets in other major eurozone economies are also under pressure at elevated levels. While eurozone bond yields declined on Wednesday, 30-year German government bond yields remained near a 14-year high, while 30-year French government bond yields remained near their highest levels since 2009. The current situation of high long-term borrowing costs has remained fundamentally unchanged.
Regarding the current decline in the global long-term bond market, Deutsche Bank CEO Christian Sewing said on Wednesday: "The economic reforms needed to truly offset the increase in debt are still lacking, and the capital market has also seen this."
This comment points out the core contradiction - many countries are currently facing pressure from rising spending needs and plan to expand debt issuance, while deficit reduction efforts are encountering political resistance. The rise in bond yields is undoubtedly "adding insult to injury", further exacerbating the vicious cycle between the fiscal and bond markets.
As the recognized "cornerstone" of the global financial system, the U.S. Treasury market is facing long-term pressure and a "two-way pull" trend due to temporary easing of short-term data.
On the one hand, the U.S. Treasury market continues to face multiple pressures: concerns about high U.S. debt, the potential impact of tariffs on inflation, and questions about the Federal Reserve's independence are all disturbing investor confidence. On Wednesday, the yield on the 30-year U.S. Treasury bond briefly rose to the critical 5% mark, breaking this level for the first time since mid-July. Investors generally believe that a 5% yield level could have an impact on risky assets.
U.S. President Trump said on Wednesday that if he loses the Supreme Court tariff case, the United States may need to "unwind" trade agreements with the European Union, Japan, South Korea and others, and will "suffer huge losses."
Meanwhile, short-term data cooled U.S. Treasury yields: a decline in U.S. job vacancies in July reflected a weakening labor market, a signal that significantly reinforced market expectations of a Federal Reserve rate cut later this month. As a result, the 30-year Treasury yield subsequently retreated, closing down 7.2 basis points at 4.898%.
It's worth noting that in the U.S., the 10-year yield has been quite stable, which suggests that things haven't fallen apart. Overall, the U.S. has actually performed quite well relative to other developed bond markets, at least from a 10-year perspective.
But long-term pressure on U.S. Treasury bonds remains - analysts point out that if the tariffs previously introduced by Trump are deemed illegal, the U.S. government may have to give up part of this tariff revenue. This concern will further increase uncertainty in the U.S. Treasury bond market.
Uday Patnaik, head of L&G Asset Management, pointed out that rising yields reflect the poor fiscal situation of some developed economies, which currently need to significantly cut spending or increase revenue to cope with it.
Neuberger portfolio manager Fred Repton pointed out: "In the short term, the large number of bond issuances this week was one of the important factors that drove the bond market down on Tuesday. Tuesday was a record day for European bond sales." The same is true in the U.S. market. On Tuesday, at least 27 issuers in the U.S. investment-grade corporate bond market chose to issue bonds in order to seize the current favorable window of credit spreads close to historical lows, while avoiding market fluctuations that may be caused by the Federal Reserve's September meeting.
But Fred Repton also stressed that short-term bond issuance factors are not the core contradiction: "Although this may be a major reason for the sharp drop on Tuesday, market participants have once again focused their attention on deficits and political risks, and this theme may continue until the end of this year." This means that even if the short-term bond market stabilizes, in the long run, problems such as high fiscal deficits, lagging reforms, and policy uncertainty in various countries will still be key variables that disturb the global bond market. Just as the warning conveyed by the rise in gold prices, the capital market needs to continue to be vigilant against the potential impact of the fiscal storm.
The rise in gold prices and the collapse of the global bond market may be a harbinger of things to come. Even if no systemic risks occur in the future, it has sounded the alarm for the capital market, which has made substantial profits in recent years.
It is also worth noting that the sell-off of long-term debt has directly increased the yield of long-term government bonds. The yield of such government bonds is precisely the "pricing benchmark" for corporate bond issuance and mortgage interest rates. While increasing corporate financing costs, it has also reduced the difficulty of the government's monetary and fiscal policy intervention.
In order for the interest rate cut to be effective, the central bank cannot just adjust short-term interest rates, but also needs to take additional measures to "lower long-term yields." This will compress the policy operating space and bring new risks.
At the same time, the high debt of governments in various countries requires them to deal with economic growth, inflation and government debt issues at the same time, which makes the future economic development of various countries more uncertain.
Traders need to closely monitor the steepness of various countries' government bond yield curves, the practical problems faced by each country, and the subsequent employment data released by the United States.
Japan's political changes fuel fiscal concerns, pushing long-term bond yields to record highs
While major global bond markets stabilized overall on September 3rd, Japan's market came under significant pressure due to political upheaval and fiscal concerns. After Japanese Prime Minister Shigeru Ishiba's ally, Liberal Democratic Party Secretary-General Hiroyuki Moriyama, resigned, market concerns about Japan's political stability intensified , directly pushing the yield on Japan's 30-year government bond to a record high well above 3% on Wednesday.
Although global bond markets have halted their short-term decline, the surge in Japan's long-term borrowing costs highlights the market's lack of confidence in its fiscal sustainability.
UK and France: Debt and political challenges intertwine, putting pressure on bond and currency markets
The bond markets of Britain and France were the first to experience sharp fluctuations on Tuesday. Although they eased slightly on Wednesday along with the global bond markets, the deep pressure has not been relieved.
UK: UK government bond yields rose sharply on Tuesday, and the British pound plummeted. The previous Monday, British Prime Minister Keir Starmer reshuffled his senior advisory team and wanted to directly intervene in the fiscal budget . Against the backdrop of high debt and slow economic growth in the UK, fiscal challenges have once again become the focus of the market.
On Wednesday, the UK's 30-year government bond yield briefly rose to around 5.75%, its highest level since 1998. Although it ended the day down 7 basis points (due to some stabilization in the bond market), long-term pressure remains. Furthermore, the UK government confirmed on Wednesday that it will announce its budget on November 26th. Investors are still speculating that the budget may include tax increases, which could further depress the UK's already weak economic growth.
France: French government bond yields also rose sharply on Tuesday, with the core conflict centered on the conflict between fiscal reform and political maneuvering. To advance his debt reduction plan, French Prime Minister Francois Bayrou announced a confidence vote on September 8th. Markets generally expect him to lose the vote , signaling a potential setback for France's debt reduction efforts and further exacerbating fiscal pressures.
Zachary Griffiths, head of investment grade and macro strategy at CreditSights, said: "The renewed global focus on the fiscal outlook seems to happen every few weeks. The UK and France were in the spotlight yesterday."
Long-term debt is running at a high level, and the eurozone's fiscal debt gap is difficult to resolve.
Besides the UK and France, bond markets in other major eurozone economies are also under pressure at elevated levels. While eurozone bond yields declined on Wednesday, 30-year German government bond yields remained near a 14-year high, while 30-year French government bond yields remained near their highest levels since 2009. The current situation of high long-term borrowing costs has remained fundamentally unchanged.
Regarding the current decline in the global long-term bond market, Deutsche Bank CEO Christian Sewing said on Wednesday: "The economic reforms needed to truly offset the increase in debt are still lacking, and the capital market has also seen this."
This comment points out the core contradiction - many countries are currently facing pressure from rising spending needs and plan to expand debt issuance, while deficit reduction efforts are encountering political resistance. The rise in bond yields is undoubtedly "adding insult to injury", further exacerbating the vicious cycle between the fiscal and bond markets.
The United States is under multiple pressures, including employment data that falls short of expectations, and U.S. debt is under pressure.
As the recognized "cornerstone" of the global financial system, the U.S. Treasury market is facing long-term pressure and a "two-way pull" trend due to temporary easing of short-term data.
On the one hand, the U.S. Treasury market continues to face multiple pressures: concerns about high U.S. debt, the potential impact of tariffs on inflation, and questions about the Federal Reserve's independence are all disturbing investor confidence. On Wednesday, the yield on the 30-year U.S. Treasury bond briefly rose to the critical 5% mark, breaking this level for the first time since mid-July. Investors generally believe that a 5% yield level could have an impact on risky assets.
U.S. President Trump said on Wednesday that if he loses the Supreme Court tariff case, the United States may need to "unwind" trade agreements with the European Union, Japan, South Korea and others, and will "suffer huge losses."
Meanwhile, short-term data cooled U.S. Treasury yields: a decline in U.S. job vacancies in July reflected a weakening labor market, a signal that significantly reinforced market expectations of a Federal Reserve rate cut later this month. As a result, the 30-year Treasury yield subsequently retreated, closing down 7.2 basis points at 4.898%.
It's worth noting that in the U.S., the 10-year yield has been quite stable, which suggests that things haven't fallen apart. Overall, the U.S. has actually performed quite well relative to other developed bond markets, at least from a 10-year perspective.
But long-term pressure on U.S. Treasury bonds remains - analysts point out that if the tariffs previously introduced by Trump are deemed illegal, the U.S. government may have to give up part of this tariff revenue. This concern will further increase uncertainty in the U.S. Treasury bond market.
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Uday Patnaik, head of L&G Asset Management, pointed out that rising yields reflect the poor fiscal situation of some developed economies, which currently need to significantly cut spending or increase revenue to cope with it.
Neuberger portfolio manager Fred Repton pointed out: "In the short term, the large number of bond issuances this week was one of the important factors that drove the bond market down on Tuesday. Tuesday was a record day for European bond sales." The same is true in the U.S. market. On Tuesday, at least 27 issuers in the U.S. investment-grade corporate bond market chose to issue bonds in order to seize the current favorable window of credit spreads close to historical lows, while avoiding market fluctuations that may be caused by the Federal Reserve's September meeting.
But Fred Repton also stressed that short-term bond issuance factors are not the core contradiction: "Although this may be a major reason for the sharp drop on Tuesday, market participants have once again focused their attention on deficits and political risks, and this theme may continue until the end of this year." This means that even if the short-term bond market stabilizes, in the long run, problems such as high fiscal deficits, lagging reforms, and policy uncertainty in various countries will still be key variables that disturb the global bond market. Just as the warning conveyed by the rise in gold prices, the capital market needs to continue to be vigilant against the potential impact of the fiscal storm.
Summarize
The rise in gold prices and the collapse of the global bond market may be a harbinger of things to come. Even if no systemic risks occur in the future, it has sounded the alarm for the capital market, which has made substantial profits in recent years.
It is also worth noting that the sell-off of long-term debt has directly increased the yield of long-term government bonds. The yield of such government bonds is precisely the "pricing benchmark" for corporate bond issuance and mortgage interest rates. While increasing corporate financing costs, it has also reduced the difficulty of the government's monetary and fiscal policy intervention.
In order for the interest rate cut to be effective, the central bank cannot just adjust short-term interest rates, but also needs to take additional measures to "lower long-term yields." This will compress the policy operating space and bring new risks.
At the same time, the high debt of governments in various countries requires them to deal with economic growth, inflation and government debt issues at the same time, which makes the future economic development of various countries more uncertain.
Traders need to closely monitor the steepness of various countries' government bond yield curves, the practical problems faced by each country, and the subsequent employment data released by the United States.
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- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
