Global bond sell-off leaves US caught in ‘vicious loop’

By the Editorial Team · Friday, October 2, 2026

Global bond markets saw sharp sell-offs with U.S. 10-year Treasury yields reaching their highest level in nearly 25 years, driven by rising energy costs linked to the Iran conflict and inflation concerns. This turmoil is increasing borrowing costs across the U.S. and Europe, raising fears of broader economic instability and prompting calls for possible policy intervention.

Global bond markets experienced a sharp sell-off on Thursday as rising energy costs linked to the conflict in Iran exerted increased pressure on public finances worldwide. The turbulence pushed borrowing costs higher across the United States and Europe, raising concerns about broader economic implications.

In the United States, yields on 10-year Treasury notes climbed to 5.34 percent, a level not seen in nearly 25 years, before retreating slightly to close at 5.24 percent. Bond yields move inversely to prices, meaning that rising yields indicate falling bond prices. Market participants described the roughly $32 trillion US government bond market as being caught in a "vicious loop" of selling, driven by persistent inflationary pressures and worries over the sustainability of government deficits.

The sell-off rapidly spread across the Atlantic. The yield on the United Kingdom’s 30-year gilt surpassed 6 percent for the first time since 1998, before easing back to 5.93 percent. In France, where political concerns have compounded market unease, the 10-year government bond yield rose by 0.1 percentage points to 4.96 percent, marking its highest level since mid-2002. Italy’s 10-year bond yield increased by 0.05 percentage points to 4.69 percent, pushing its spread over comparable German debt to around one percentage point—the widest gap recorded since March.

Analysts attributed the intensified selling to a combination of inflationary pressures, deteriorating public finances, and the influence of large institutional investors such as hedge funds. These investors have been offloading long-term debt to mitigate the impact of rising yields on their broader portfolios or to unwind positions amid declining bond prices. Mike Bell, head of market strategy at RBC BlueBay Asset Management, noted that numerous investors were being "stopped out" of long positions or choosing to exit amid persistent yield increases.

The energy market added to the strain, with Brent crude oil rising 3.2 percent to $101.15 per barrel, further exacerbating inflation concerns and financial market volatility. Higher energy prices are fueling fears of sustained inflationary pressures, which in turn drive investors to demand higher yields on government debt.

The upheaval in European debt markets coincided with the French government’s announcement of a draft 2027 budget featuring €43 billion in spending cuts and tax increases, aimed at addressing growing apprehensions about France’s fiscal health. The euro weakened amid these developments, dropping nearly 1 percent to a 16-month low of $1.12, pressured by rising oil prices and investor caution tied to the bond market turmoil.

Market strategists warned of potential spillover effects within the Eurozone. Pooja Kumra, a rates strategist at TD Securities, pointed out that yields on Italian and other Eurozone government bonds were increasingly affected by the French market sell-off. She suggested that significant intervention from policymakers might be necessary to stabilize the situation.

The ongoing volatility highlights the interconnected challenges facing global financial markets as geopolitical tensions, inflationary pressures, and fiscal sustainability concerns converge.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.