Bond yields trigger alarm across global markets – Iran factor!

Alarm bells are ringing across global financial markets as government borrowing costs surge — from Tokyo and Frankfurt to London and New York. Bond yields are hitting levels not seen in years, and in some cases decades. Investors are especially nervous in the United States.

The selloff in government bonds intensified Tuesday. Yields on the three most closely watched U.S. Treasury maturities — the 2-year, 10-year and 30-year — ranged from 4.37% to 5.24%. That means higher borrowing costs across the economy, from national governments and corporations to ordinary consumers. Stocks also came under pressure as yields climbed.

For President Donald Trump, 80, the turmoil is a major setback. Since returning to office in early 2025, Trump has repeatedly pushed for lower interest rates to stimulate the economy and revive the housing market. But his own policies have also contributed to the latest market drama: The renewed escalation of the Iran war has driven energy prices higher around the world.

Following fresh U.S. airstrikes on Iranian positions, Brent crude rose about 2% Tuesday to roughly $92 per barrel. Oil prices are now about 30% higher than before the war began. That is keeping inflation stubbornly elevated — toxic for both economic growth and hopes for lower interest rates.

Bond yields: Iran war keeps inflation fears high

“After six months of war, there is still no clear path to fully reopening the Strait of Hormuz,” said Ulrike Hoffmann-Burchardi, UBS chief investment officer for the Americas. “Inflation worries therefore remain elevated.”

The Iran war is colliding with another major problem: aggressive borrowing by some of the world’s largest economies. U.S. national debt recently crossed the $40 trillion mark — more than 120% of annual economic output.

Germany looks almost like a model of fiscal restraint by comparison, with roughly €2.9 trillion in public debt, equal to about 64% of GDP. Even so, yields on 10-year German government bonds have climbed to levels last seen in 2011.

Another factor is adding pressure in the United States. Technology companies are issuing billions of dollars in bonds to finance massive investments in artificial intelligence infrastructure and data centers. That flood of corporate debt competes with U.S. Treasuries for investor capital, adding further pressure to the bond market.

Bond market becomes a political watchdog

Investors are increasingly frustrated by the lack of credible plans from governments to rein in deficits and reduce debt. The era of “cheap money” that made massive borrowing easier may be coming to an end.

Peter Schaffrik, European macro strategist at RBC Capital Markets, sees the bond market increasingly acting as a disciplinary force on governments.

“You need some kind of a disciplinary factor, and that’s probably the bond market,” he told The New York Times.

For consumers, the consequences are direct. Higher bond yields can keep mortgage rates, business loans and other borrowing costs elevated. At the same time, rising energy prices can push inflation higher again. Households can therefore get squeezed from both sides — higher prices in everyday life and higher interest costs on new debt.