Bond markets turn on soaring debt as yields hit two-decade highs

Investors this week drove sovereign bond yields to two-decade peaks, signaling that debt levels are now a dominant market worry. The United States, along with the U.K., France, Germany and Japan, saw yields climb as governments continued post-pandemic spending despite rising borrowing costs. RSM chief economist Joseph Brusuelas warned that markets now deem the debt trajectory unsustainable, while Brookings senior fellow Robin Brooks noted that patience is wearing thin.

Higher oil prices and stagnant U.S.-Iran talks have stoked inflation fears, prompting the Federal Reserve’s Kevin Warsh to withhold forward guidance. In response, the Treasury Department announced larger purchases of long-dated bonds, a move that temporarily lowered yields before investor skepticism resurfaced. Capital Economics analysts added that the heightened term premium reflects justified demand for compensation amid fiscal and policy uncertainty.