The rise in bond yields is international because the problems are international. These problems are growing, not shrinking. In classical economics, bond yields would fall if the economy slowed into recession (due to lower demand for capital from businesses). But I think there’s a good chance that a recession would not lower bond yields because deficits would rise due to government unemployment insurance spending and lower tax receipts. Stagflation is a real possibility.
Bond investors are uneasy because the government deficits are still growing and inflation has been over the target for over 5 years. They (we) are especially backing away from long-term debt because yields may rise from here and the losses in long term bonds would be high.
As interest rates rise the value of existing bonds fall. The market calls this a “selloff” because bond holders are selling bonds instead of buying them at the offered yield.
https://www.nytimes.com/2026/09/01/business/bond-yields-debt.html
Global Bond Sell-Off Puts Investors on Edge
Government borrowing costs are hitting multi-decade highs around the world, reflecting anxiety about debt levels, deficits and inflation.
By Eshe Nelson, The New York Times, Sept. 1, 2026
A global sell-off in government bonds intensified on Tuesday, pushing up borrowing costs in some of the world’s largest economies to their highest in decades and rattling investors.
As rising oil prices compound worries about inflation, bond yields are testing fresh highs, squeezing government budgets and raising interest rates on a wide range of consumer and business loans. The yield on 10-year U.S. Treasury notes, perhaps the world’s most influential interest rate, reached its highest since January 2025, and the 30-year yield continued to hover around a two-decade high…
America’s rising borrowing costs have set off a battle between Treasury Secretary Scott Bessent and bond investors, but the factors pushing up yields in the United States are also issues in other big markets…
Government debt levels, in some cases, have already reached eye-watering levels. America’s gross national debt topped $40 trillion for the first time last month, or more than 120 percent of the size of the economy. In France, public debt exceeded 3.5 trillion euros (about $4 trillion), which is 117 percent of the size of its economy. In Japan, the government is spending heavily despite a public debt pile that is more than twice the size of its economy…[end quote]
It’s absurd to say there’s a “battle” between the Treasury Secretary and bond investors. Bessent is trying to suppress the yield of long-term Treasuries by buying them with short-term T-Bills. In the scale of the ocean of debt, the amount he is moving is a drop in the bucket.
Treasury doesn’t have the power of fiscal manipulation like Congress (federal budget) or the Federal Reserve (QE with fiat currency).
The fundamental problems of government deficits, huge borrowing by AI companies, inflation caused by tariffs and supply/ demand and investors’ loss of trust in government spending ever returning to balance can’t be changed by a small action by Treasury. I don’t see these fundamentals changing soon so my bond investments are now relatively short-term (under 10 years) which I plan to hold to maturity for return of capital.
Wendy
