A worsening bond selloff is pushing the average yield on global government debt to within a whisker of 4%, a level not seen since 2007. Yields on Bloomberg’s Global Aggregate Treasuries index rose eight basis points to 3.99% on Wednesday. Treasuries have been a major driver of the losses, as strong economic data and a five-year US debt auction that ranked as the second-worst by one measure in data going back to 2018 sent yields across much of the curve to multiyear highs.

The rise threatens to increase borrowing costs for governments, businesses and households while squeezing corporate profits and making stocks less attractive. It comes as a prolonged Iran war, stubborn inflation and mounting fiscal concerns reinforce expectations that interest rates will stay higher for longer. “Inflation is still high and sticky in a lot of places, labor markets are tight for various reason, and despite higher fuel and everything prices, economies are still growing well,” said Amy Xie Patrick, a money manager at Pendal Group. “Given all of this, bonds are actually behaving rationally with respect to the economic fundamentals.” The pressure spread to Asia on Thursday. Yields on policy-sensitive three-year Australian government debt jumped 13 basis points to 5.07%, its highest since May 2011.

New Zealand’s two-year yields climbed as much as 17 basis points to just under 4%. Japan’s 10-year yield also rose as the market reopened after a three-day holiday. Strategists at JPMorgan Chase & Co. and KKR & Co. see scope for US yields to climb further as energy-driven inflation, heavy government borrowing and the risk of additional central-bank tightening continue to percolate.

US five-year yields topped 5% on Wednesday for the first time since 2007, while those on 10-year jumped the most since the Liberation Day tariff shock in April 2025. Strong economic data and surging oil prices prompted traders to ramp up bets on further Federal Reserve tightening. Swaps now fully reflect three quarter-point hikes over the next year, with significant hedging for a fourth.

A $70 billion five-year Treasury auction on Wednesday drew the highest yield since 2006. Damien Loh, chief investment officer at Ericsenz Capital, said while short-dated bonds look cheap, he would avoid trading against the market’s momentum and price action. For investors looking to fade the selloff, he favors yield-curve steepeners such as 2s10s or 5s30s as a better risk-reward trade.

Rising volatility is adding to the gloom, making investors more hesitant to step in even as higher yields make bonds more attractive. The ICE BofA MOVE Index, which measures US bond market swings, climbed Wednesday to the highest level since March. “Most fixed income will like higher yields, but want them to be stable there — afraid of catching a falling knife,” said Hans Mikkelsen, strategist at TD Securities.