High oil prices triggered the bond-market rout, but rising government debt is amplifying the selloff. While inflation expectations and Federal Reserve tightening explain part of the yield increase, the extra return demanded for long-term bonds exceeds what short-term rate movements would suggest, per San Francisco Fed analysis. France and Italy saw outsized yield jumps—1.29 and 1.28 percentage points—driven by high debt levels.
Italy’s debt-to-GDP ratio reached 149% in 2025, the highest in the G7, compared to 126% in the U.S. and 117% in France. In contrast, Germany, the UK, and Canada, with lower debt ratios, experienced smaller yield increases. Japan, despite having the highest gross debt ratio in the G7, saw only a 0.4 percentage point rise in 10-year yields due to its strong net debt position and low deficit of 1.7% of GDP in 2024, well below the G7 average of 4.7%.
Analysts warn that even if oil prices stabilize, debt concerns may keep rates elevated longer, especially in heavily indebted markets, as risk factors can remain dormant until triggered by new shocks.
Source: Wall Street Journal Markets · Summarized by HeadlinesBriefing