The sharp decline in global government bond prices since March caught many investors off guard, as inflation fears pushed yields higher despite typical safe-haven demand during geopolitical tensions. While stock markets have recovered somewhat, bonds remain under pressure as central banks signal potential rate hikes to combat inflation.

Japan's government bond market, once considered moribund, now poses a latent threat to global debt. As Japanese yields rise to 2.5% on 10-year bonds and 3.8% on 30-year bonds, domestic investors face less incentive to seek overseas returns, potentially reducing demand for US Treasuries and Eurozone debt. HSBC analysts warn this creates upward pressure on funding costs worldwide.

Japanese currency intervention adds another dimension. Efforts to support the weakening yen involve selling US Treasuries for dollars, then converting them back to yen - a strategy that further pressures American bond markets. Prime Minister Sanae Takaichi's recent warnings suggest more intervention could be coming.

Meanwhile, India faces mounting economic pressures with inflation rising and the rupee hitting record lows against the dollar. Foreign investors have dumped a record $53bn in Indian equities since September 2024, driven partly by AI disruption fears in the outsourcing sector. The Reserve Bank of India may need to raise rates above 5.25% to stem outflows, threatening Prime Minister Narendra Modi's 2047 development timeline.