A global bond sell-off deepened on Tuesday, pushing UK borrowing costs to their highest level since 2008 and Japan’s to peaks not seen since the 1990s, as investors bet that central banks will step up the pace of interest rate increases.

The benchmark 10-year gilt yield jumped 0.08 percentage points to 5.23 per cent, its highest level since the global financial crisis, while 30-year yields leapt as much as 0.12 percentage points to touch 5.9 per cent for the first time since the late 1990s.

The Japanese 10-year bond yield reached 3 per cent, its highest level since 1996. US 10-year Treasury yields rose 0.03 percentage points to 4.78 per cent, and the interest-rate-sensitive two-year yield rose to 4.38 per cent, its highest level since early 2025. Bond yields move inversely to prices.

The moves came after a renewed flare-up in the conflict in the Middle East and rising expectations that central banks will raise rates to combat inflation from higher energy prices, increasing the strain on indebted governments.

Bond markets were in “a doom loop”, said Craig Inches, head of rates and cash at Royal London Asset Management.

“The conflict isn’t going away, yields have to price in more uncertainty, but governments still have a lot more borrowing to do . . . you aren’t getting any respite,” he added.

NTMA prepares for bond sale amid wider market turmoil

Brent crude was up 2.4 per cent on Tuesday at $92.69 a barrel. Data on Tuesday showed Eurozone inflation rose to 3.3 per cent in August, in line with forecasts, with energy inflation surging to 14.3 per cent.

Global stock markets fell amid the bond sell-off. Wall Street’s S&P 500 was 0.7 per cent lower and the Nasdaq 100 fell 1.4 per cent in early trading. The broad Stoxx Europe 600 index lost 0.3 per cent.

Global debt yields have been on the rise this year, with new US Federal Reserve chair Kevin Warsh’s hawkish tone in his speech at last week’s Jackson Hole symposium adding to the sell-off. Investors are now pricing in a roughly two-thirds chance of an interest rate rise later this month.

Rising borrowing costs add to pressure on both UK prime minister Andy Burnham ahead of the budget next month and Japanese prime minister Sanae Takaichi, who has faced questions over how she will pay for her vast economic stimulus plans.

The rise in Japanese yields came after US treasury secretary Scott Bessent met both Satsuki Katayama, Japan’s finance minister, and Kazuo Ueda, the Bank of Japan’s governor, at a G20 meeting in the US on Monday. Bessent said Tokyo’s next step should be to raise interest rates, according to Japanese state broadcaster NHK.

In a subsequent interview with CNBC, Bessent said: “I have information that the market doesn’t have, and it’s my belief that the Japanese government and the Bank of Japan (BoJ) will do the things that will lead to a stronger yen.”

Even before Bessent’s remarks, the market had put a high likelihood on the BoJ raising interest rates by 0.25 percentage points to 1.25 per cent at its monetary policy meeting on September 18.

Takaichi’s spending plans, including a controversial consumption tax cut, have fuelled fears about Japan’s fiscal position. The Japanese defence ministry has submitted a record budget for next fiscal year and Takaichi’s flagship economic stimulus package involves vast government spending. – Copyright The Financial Times Limited 2026