Global Rate Rises Spill Over as Japan's Long-Term Yields Climb

2026-08-18

Global Upward Pressure

Rate rises are cascading around the world. Crude prices remain elevated on caution over Middle East tensions, inflation pressures have not fully faded, and fiscal concerns across countries and regions, along with huge corporate bond issuance by AI companies, are weighing on bond markets.

In Japan's bond market on the 18th, the yield on newly issued 10-year government bonds at one point rose to 2.945%. That was 0.025 percentage point above the previous day and marked a fresh 30-year high since September 1996 for a second straight day. The 30-year bond yield also rose 0.085 percentage point to 4.155%, nearing the 4.200% peak reached in May.

Behind the rise in rates are domestic factors such as speculation that the Bank of Japan may accelerate rate hikes and the expansionary fiscal policy of Sanae Takaichi's administration, as well as higher long-term yields overseas. In the United States, the 30-year Treasury yield on the 17th rose above 5.3%, the highest in 19 years since 2007. The 10-year yield was also at 4.7%, close to 4.8% in January 2025. In Europe, France's long-term yield moved into the 4% range to hit a 17-year high, while Germany was also at 3.2%, a 15-year high.

Three Drivers of the Rise

Three forces are driving global rate increases: tensions between the United States and Iran, fiscal concerns, and expanding AI-related investment. The US and Iran have made little progress in talks over the 60-day negotiation deadline set under a memorandum aimed at ending hostilities, and the deadline could not be extended. Both sides have intensified their criticism, and Iran has indicated plans to strengthen its posture of attack.

As a result, oil prices have remained on an upward trend, with inflation pressures feeding bond selling. On the fiscal front, the US deficit continues to widen. The fiscal deficit for the 10 months through July reached $1.7988 trillion, already above the prior fiscal year. Kenji Yamamoto, chief market economist at Daiwa Securities, said with the midterm elections coming in November, it is unlikely that debates calling for tighter fiscal discipline will gain traction.

In France as well, with the presidential election due in 2027, the far-right opposition National Rally, led by former party chief Marine Le Pen, is calling for expansionary fiscal policy. In 2025, political turmoil stood out, including a prime minister submitting his resignation only half a day after forming a cabinet. An executive at a European asset manager said the government does not have the capacity to rein in the deficit.

Fiscal Concerns and AI Spending

Expanding AI-related investment, centered on the United States, is also straining bond supply and demand. Hyperscalers are financing data center investment through massive corporate bond issuance, and Alphabet decided this month to issue $25 billion in dollar-denominated bonds.

Tech companies are viewed as not far behind governments in credit quality, and the market is increasingly seeing new high-yield debt as drawing funds away from government bonds. Ed Al-Hussaini of Columbia Threadneedle Investments said competition between US Treasuries and corporate bonds from tech companies is intensifying, particularly in maturities of more than 30 years.

Caution Over Rushing to Buy

Views are also spreading that AI will accelerate inflation. In the Bank of Japan's July monetary policy meeting 'main opinions' released on the 10th, there were notable comments that global AI-related demand and expansionary fiscal policies in various countries could boost demand and push prices higher still.

While yields alone may make the market look attractive for investment, rates have been edging higher on multiple factors. Fuko Life Insurance's Yoei Oizumi, head of the securities department, said it is hard to find a trigger for falling rates and there is no need to rush to buy now, reflecting the market's cautious stance.

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