Global bond investors pushed US 10-year yields to 4.8 percent and Japan's to 3 percent, the highest in three decades, as the G-20 summit in Asheville offered no credible plan to rein in deficits that have left developed-market debt on track for a record $75.8 trillion.
Global bond investors handed world leaders a failing grade this week, driving the US 10-year Treasury yield to 4.8 percent, the highest of President Trump's presidency, and Japan's 10-year yield above 3 percent for the first time since 1996. The repricing, which accelerated as finance ministers and central bankers gathered for the G-20 summit in Asheville, North Carolina, reflects a market that no longer trusts governments to fix their fiscal positions.
"The market has not yet demanded a meaningful fiscal risk premium. We suspect it eventually will," said Ajay Rajadhyaksha, global head of rates research at Barclays.
The selloff was global in scope. Britain's 10-year gilt yield reached 5.15 percent, its highest since mid-2007, while the 30-year gilt pushed close to 6 percent, a level last seen around the stress of 1998. France's 10-year yield climbed to 4.21 percent, up 0.65 percentage points this year, and German bunds hit levels last seen in 2011. The US 30-year Treasury touched 5.337 percent, its highest since 2007.
The stakes are now landing inside national budgets. The US federal deficit is on track to top 6 percent of GDP this fiscal year, with total public debt crossing $40 trillion in August and interest costs of roughly $1.1 trillion a year overtaking Medicare as the second-largest budget line after Social Security. Fitch Ratings projects developed-market government debt will rise $4.2 trillion this year to a record $75.8 trillion, equal to 104 percent of GDP, up from $26 trillion, or 68 percent of GDP, two decades ago.
The G-20 gathering offered little reassurance. Treasury Secretary Scott Bessent opened the summit by arguing the world could "grow our way out of" its debt burden, a strategy that has yet to materialize. US GDP rose 2.1 percent over the past 12 months, in line with the prior administration's final year, while the deficit remains as wide as it was then. Economists Doug Elmendorf, Karen Dynan and Louise Sheiner found in a recent paper that even if AI sustainably lifted annual productivity growth by a half to a full percentage point, the debt-to-GDP ratio would keep climbing in every scenario they modeled.
Bessent, unable to change the fundamentals, has resorted to tinkering with symptoms: a surprise boost to bond buybacks framed as an effort to slow the pace of yield moves, and support for a stronger yen after he reiterated his backing to Bank of Japan Governor Kazuo Ueda. He offered little relief on the inflation drivers the administration partly controls. As the US resumed bombing Iran, pushing Brent crude above $90 a barrel, roughly 30 percent above prewar levels, Bessent predicted the Strait of Hormuz, which handles about 21 percent of global oil trade, would be a "worthless piece of water" within two years.
Rajadhyaksha argues the current yield run-up is driven less by a fiscal premium than by investors pricing in sustainably higher short-term rates as the new normal, given AI-driven growth and more ubiquitous inflation risks. At 3.6 percent, the Fed's policy rate may not be unusually high; it might be the new normal. The Congressional Budget Office estimates that each percentage point of GDP added to federal debt lifts bond yields by 0.02 percentage points, implying the rise in debt from 35 percent of GDP in 2006 to 100 percent now should have added 1.3 percentage points to yields. Yet yields are no higher than in 2006.
The missing premium may be arriving through a different channel. A borrowing binge by technology companies building AI systems has flooded markets with corporate debt — US investment-grade issuance totaled about $1.7 trillion through July, up 27 percent from a year earlier and on track to exceed $2 trillion for the first time. Because demand for AI-linked bonds has been so strong, spreads have stayed compressed, and the adjustment has come through higher Treasury yields instead. "The AI revolution is producing a classic crowding-out effect, causing Treasury yields to rise," said Ed Yardeni, president of Yardeni Research.
The pressure is most acute where debt is heaviest and growth weakest. Italy's general government interest costs are projected at €105.4 billion in 2028 against revenue of €1.169 trillion, consuming about 9 percent of government revenue. France expects state debt service to reach €59.3 billion in 2026, rising to €76.7 billion by 2028. Britain's central government debt interest is forecast at £109.7 billion in 2025-26.
Governments have no easy exit. Cutting spending fast enough to offset higher rates is politically brutal almost everywhere, and faster growth has not arrived. They refinance at higher rates and hope the market stays patient. A crisis is not automatic — G7 governments still borrow in their own currencies and their auctions still clear — but the reset is real. The most important stress point may not be the headline yield but the budget line that keeps growing after the charts stop moving. At future summits, G-20 leaders may not be able to ignore the bond market as easily as they did this year.
This article is for informational purposes only and does not constitute investment advice.
