Global bond markets came under sharp pressure after Japan’s borrowing costs surged to record highs, raising fears over rising debt and fiscal spending.
A surge in Japan’s borrowing
costs to record highs rippled out across major bond markets on
Tuesday, just as markets fretted over tensions related to
Greenland, highlighting their vulnerability to increased fiscal
spending and high debt.
Ten-year Japanese government bond yields have
surged almost 19 basis points (bps) in two days, the sharpest
rise since 2022, while 30-year yields posted their biggest daily
jump since 2003 on Tuesday as investors brace for
increased government spending.
Prime Minster Sanae Takaichi called a snap election on Monday
and is running on a platform of stimulus.
“If there is a strong mandate following the election, that
could open the door to more fiscal spending,” said Seema Shah,
chief global strategist at Principal Asset Management.
“It pulls a lot of global bond markets into a difficult
story about debt and you can see that in the rise in borrowing
costs.”
WORRIES OVER GREENLAND, THREAT OF MORE TARIFFS
Bond investors were also grappling with U.S. President
Donald Trump’s tariff threats against European allies over
Greenland, which may raise expectations that Europe will have to
ramp up defence spending further through even more bond
issuance.
Talk of a ‘Sell America’ trade has also resurfaced, adding to
selling pressure on Treasuries.
Danish pension fund AkademikerPension said on Tuesday it was
planning to sell its U.S. Treasury holdings by the end of the
month, worth some $100 million.
U.S. 30-year Treasury yields jumped around 7 basis points to
4.91% as U.S. markets reopened after Monday’s
holiday.
Over the last two trading days, they’ve risen by around 12
bps, their biggest two-day increase since last May, when
China-U.S trade tensions flared.
The difference between two-year and 30-year yields, one
reflection of investor concern about long-term government
finances, were set for their biggest one-day rise since August,
yet dwarfed by the 19-bps blow-out in a day during last April’s
Liberation Day selloff.
Kenneth Broux, head of corporate research FX and rates at
Societe Generale, said “a perfect storm” was driving Treasuries,
including the “carnage” in JGBs, tariff threats and momentum,
noting that 10-year yields closed above 4.20% on Friday – a
“technically important” level.
WHAT HAPPENED TO THE CALM?
The bonds selloff ends weeks of relative stability in big
markets outside of Japan that have faced pressure over the past
year from concern about high debt.
Benchmark German 30-year bonds climbed as much as 6
bps to 3.52% in their biggest selloff since September, before
subsiding to around 3.486%.
UK 30-year yields, which often rise or fall more
than peers, were up around 6 bps at 5.22%, set for their largest
daily increase since early November.
In Europe, tensions over Greenland only highlighted spending
pressures, analysts said.
“It again means that Europe needs to do more on defence,”
said Barclays head of euro rates strategy Rohan Khanna.
“Which the market is going to say: look, it eventually means
more issuance and more debt supply and hence weaker long-end
bonds.”
He added that tariffs would hurt growth, which was
supportive for shorter-dated bonds.
European bond markets were also sensitive to the JGB selloff
because Japanese investors, big buyers of foreign bonds, might
be tempted to move money into higher Japanese yields.
“The question is, where are those flows going to come from
now? Are they going to come more from the U.S. or more from
Europe? And given the current geopolitical landscape, that could
amplify the spillover to the U.S. a bit more,” said ING senior
rates strategist Michiel Tukker.
“You could argue it’s safer to stay in German Bunds than
U.S. Treasuries.”
Published on January 21, 2026
