Government borrowing costs across every major developed economy hit multi-decade highs on Tuesday, driven by a convergence of forces that bond markets are now pricing as structural rather than temporary. The 30-year US Treasury yield reached 5.324%, its highest since June 2007. The 10-year US yield rose to 4.736%. Japan's 10-year bond hit 2.945%, a three-decade peak. UK gilts at 5.076%, Germany at its highest since 2011, France at a 16-year peak. This is not one country's problem. The immediate catalyst: the US-Iran ceasefire collapsed Monday night with no agreement and no progress on reopening the Strait of Hormuz. Oil pushed above $91 a barrel on Tuesday after Donald Trump threatened to bomb Oman if they "get in the way" of negotiations. Higher energy prices feed directly into inflation expectations, which feed directly into the interest rates governments must pay to borrow. But the yield surge is not just about oil. Dan Coatsworth, head of markets at AJ Bell, identified the deeper structural driver: investors are demanding greater compensation for the sheer volume and risk of holding long-dated government bonds. Governments cannot stop spending. Defence budgets are ramping across Europe — Germany and the UK are leading — adding fiscal pressure on top of war-driven inflation. The corporate side is piling on. AI companies are issuing enormous volumes of debt to fund capital expenditure, competing with sovereign issuers for the same pool of bond-market capital. Neil Wilson of Saxo UK named it directly: "Issuance is clearly a factor — both on the government side (they can't stop spending!) and on the corporate side (AI capex)." The bond market is being asked to absorb war spending, welfare states, and the buildout of AI infrastructure simultaneously. The mechanism is straightforward and self-reinforcing. Higher yields mean governments pay more to service existing debt, which increases deficits, which requires more borrowing, which pushes yields higher. Meanwhile, the Hormuz chokepoint keeps energy prices elevated, which keeps inflation expectations high, which keeps central banks from cutting rates. Each pressure feeds the others. What makes this moment distinctive is the simultaneity. This is not a US problem or a UK problem — it is a developed-world problem. Japan, which has kept yields artificially low for decades, is seeing its 10-year bond at levels not reached in 30 years. When Japan's bond market moves, the plumbing of global finance shifts with it. The era of cheap sovereign borrowing is over, and the costs will show up in every government budget, every mortgage rate, and every infrastructure project that depends on public financing.
