Sovereign bond yields have risen across most developed markets this year, with the pace accelerating in recent weeks. However, there is no clear consensus on the driving factors. Analysis of debt-to-GDP ratios and 10-year yield increases shows a loose positive relationship, though exceptions exist.
For instance, South Korea has a low debt-to-GDP ratio of 52 per cent but experienced a yield jump similar to Italy, whose public debt stands at 137 per cent of GDP. Inflation rates offer limited clarity, as Italy and Spain recently recorded annualised inflation above 4 per cent, yet their yield increases lagged behind those of French sovereign bonds, despite France’s tamer inflation rate of 3 per cent. Growth also plays a role: the steady expansion in US real GDP helps explain why its yields have risen more than those of Italy, which has higher debt and more inflation.
Additionally, political risk is a significant unquantifiable factor. French bond yields have surged to levels near those of the European debt crisis due to election uncertainty and a worsening fiscal situation. The biggest outlier is Japan, where the 10-year JGB yield has surged by nearly one percentage point in 2026, comparable to Gilts and Italian debt.
Yet Japanese inflation was just 1.9 per cent in August—the lowest on the list. Decades of deflation in Japan have made these “normal” inflation levels, alongside a weak yen and energy shock, a bigger jolt to the economy.
Source: Financial Times Markets · Summarized by HeadlinesBriefing