18.08.2026 - Yields and Debt back in Focus

Global bond yields are back in focus. The pressure is increasingly broad-based.

The US 30-year Treasury yield reached a new 19-year high on Tuesday, as concerns about the US fiscal trajectory, persistent inflation and rising oil prices continued to put upward pressure on long-term borrowing costs.

The move is not limited to the United States. Government bond yields across several major developed markets have climbed to levels not seen in decades:

• The US 30-year Treasury yield briefly reached a new 19-year high before easing back towards 5.28%.

• The US 10-year Treasury yield trades above 4.70%.

• Japan’s 10-year government bond yield reached its highest level in around 30 years.

• Germany’s 30-year yield climbed to its highest level since 2011.

• France’s 30-year yield moved to a post-2008 high.

• UK government bond yields also moved higher with 30-year yield close to its highest point since 1998.

China remains one of the notable exceptions with deflationary pressure.

Debt, Deficits and Inflation
The renewed pressure on US yields comes as the country's fiscal situation continues to deteriorate. The US fiscal deficit jumped to USD 432.3 billion in July, its highest monthly level since March 2021, pushing the year-to-date shortfall towards USD 1.8 trillion.

At the same time, financing the nearly USD 40 trillion national debt is becoming increasingly expensive. Interest costs have reached roughly USD 1.2 trillion this year, or USD 3 billion a day.

Inflation adds another layer of pressure. While recent monthly inflation readings have been relatively moderate, the annual inflation rate remains clearly above the Federal Reserve's 2% target. Rising oil prices amid continued Middle East tensions could add renewed inflationary pressure over the coming months.

Markets:

• Equities: global indices are trading lower

• Bonds: yields moving higher across the globe (China one exception) - US 10y yield above 4.71%, Japan 10y yield 2.94%

• Commodities: Oil prices higher, WTI around USD 85/barrel and Brent around USD 91/barrel
  Precious metals prices fall back, gold close to USD 4’355/oz, silver moves towards USD 64/oz

• Currencies: US dollar sideways, Japanese Yen weakens, USDJPY 160

• Cryptos: mixed - Bitcoin above USD 64k

• Volatility: The VIX index little changed with level above 15 (still good opportunity for hedging)
  

My View: This is another topic I have highlighted several times because I believe it has the potential to become a major source of market turmoil.

The problem is not simply that yields are rising. It is where they are rising from and how much debt now needs to be financed at these higher rates.

The US government is currently spending roughly USD 3 billion every single day on interest payments alone. With debt approaching USD 40 trillion, higher yields increasingly feed directly into higher government financing costs. More debt has to be refinanced at higher rates, pushing interest expenses higher and putting additional pressure on future deficits.

It can become a self-reinforcing cycle: higher yields → higher interest costs → larger deficits → more borrowing → further upward pressure on yields.

And the consequences are not limited to governments. US households continue to suffer from elevated mortgage rates and already-stretched finances. One particularly concerning signal: Google searches for “help with mortgage” have reportedly risen above levels seen during the 2008 housing crisis.

Higher long-term yields also mean higher financing costs for companies, more expensive mortgages and consumer credit, and higher discount rates for equity valuations. This becomes particularly relevant for highly valued growth and technology stocks.

Japan adds another dimension to the global bond-market risk. I highlighted the increasingly difficult situation yesterday in “17.08.2026 - Japan - Walking on the Edge”. A weak yen, imported inflation, rising government bond yields and an extremely high government debt burden create a particularly challenging combination.

For years, financial markets became accustomed to extremely low interest rates and cheap refinancing. That environment is gone.

If global long-term yields continue to move higher from here, investors may eventually be forced to reassess equity valuations, government debt sustainability and the broader consequences of a world carrying record amounts of debt at significantly higher financing costs.

In my view, the massive accumulation of public and private debt, including off-balance-sheet and shadow liabilities, remains one of the most underestimated systemic risks to global financial markets.

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