Global equity markets extended declines on Wednesday as sovereign bond yields surged to multi-decade peaks, stoking concerns over inflation and fiscal headroom.
Asia-Pacific shares led losses, with Japan’s Nikkei 225 down 2.7%, China’s CSI 300 down 1.4% and South Korea’s KOSPI down 3.3%. U.S. markets followed overnight, with the Russell 2000 of smaller companies falling 1.2%.
The sell-off in government debt deepened on Tuesday, pushing the UK’s 10-year gilt yield to its highest since early 1998 and Japan’s 10-year bond yield to its highest since 1996. Analysts cited three primary drivers: rising inflation expectations, concerns over elevated government spending and increased competition for capital from AI firms.
Brent crude oil prices rose to $97 per barrel, their highest since late July, after U.S. airstrikes on Iranian targets heightened supply risks. The increase threatens to reinforce inflationary pressures already weighing on bond markets. ING noted that while oil flows through the Strait of Hormuz have continued despite the U.S.-Iran stalemate, "rising tensions clearly put crossings at risk."
Australia’s 10-year government bond yield hit 5.22%, a 15-year high, while India’s 10-year yield briefly breached 7% for the first time in three months. In the UK, 10-year gilt yields rose by a quarter percentage point in a single session—unmatched since the Liz Truss premiership—prompting warnings from former Treasury minister Lord Jim O’Neill that mortgage rates could climb further unless bond markets stabilize.
Market strategists at Deutsche Bank described the shift as a "chill" sweeping through markets, driven by rising geopolitical risk, oil prices and bond yields as the northern hemisphere’s meteorological autumn began.
