Global Bond Yields Surge Amid Market Turmoil

Government bond yields in Japan, Australia, and New Zealand surged to multi-year highs, reflecting a broader selloff in global debt markets sparked by significant changes in Germany’s economic and defense policies. The yield on Japan’s 10-year government bond climbed to 1.5%, marking its highest level since 2009, while the 40-year bond yield rose to a level not seen since its introduction in 2007. Similarly, the benchmark 10-year bond yields in Australia and New Zealand also saw increases of approximately 10 basis points, while U.S. Treasury yields fell for the third consecutive day.

This market rout followed a sharp rise in the 10-year German bund yield, which jumped by as much as 31 basis points. The spike was attributed to Germany’s revised spending plans on defense and infrastructure, prompted by the United States’ reduced commitment to European security. The euro experienced its strongest three-day rally since 2015 ahead of the European Central Bank’s (ECB) policy meeting on Thursday.

Global Debt Market Impact: German and U.S. Yields Drop

“We are witnessing a historic shift in economic and defense policies,” commented Hideo Shimomura, senior portfolio manager at Fivestar Asset Management Co. in Tokyo. “It’s difficult to be optimistic about bonds until we understand the full scope of this shift.”

As market sentiment adjusts, investors are scaling back their expectations of future rate cuts by the European Central Bank. There is growing concern about the scale of borrowing needed to finance Germany’s new spending plans, which are aimed at countering the threat of Russian aggression. Despite near-unanimous predictions from analysts for a quarter-point rate cut, further reductions could undermine the appeal of newly issued bonds necessary to meet the increased borrowing targets.

Masayuki Koguchi, executive chief fund manager at Mitsubishi UFJ Asset Management, noted, “Investors were likely caught off guard by the magnitude of developments in Germany. They will need to reassess their strategies moving forward.” He added that the rise in German bond yields and the subsequent selling of U.S. government bonds were major market drivers.

Euro-Denominated Investment-Grade Corporate Bonds Face Losses

The ripple effects of the global bond selloff were felt across multiple markets. Year-to-date gains for Euro-denominated investment-grade corporate bonds were erased by Wednesday’s losses, according to data. The sector has now lost 0.2% in 2025 after experiencing its largest drop since June 2022.

In the U.S., Treasury traders are also closely watching developments in Washington, particularly President Donald Trump’s remarks on potential government funding issues. Trump recently posted on social media, stating that he was working on a bill to continue funding the government until September, as funding is set to run out next week.

Japan’s Rising Yields and BoJ’s Rate Hike Speculation

Meanwhile, bond yields in Japan continue to rise amid speculation that the Bank of Japan (BoJ) will continue its gradual rate hikes. Deputy Governor Shinichi Uchida hinted at further increases in his speech on Wednesday, confirming that the BoJ’s benchmark interest rate remains on a path of slow and steady upward movement.

Keisuke Tsuruta, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities, pointed out, “The 1.5% yield on Japan’s 10-year bonds is a psychological milestone but not a definitive barrier. It could be surpassed depending on international factors.” He added that the BoJ is likely to maintain its cautious approach, watching both domestic economic trends and global developments, including potential impacts from U.S. tariffs.