The increase in global bond yields since the US war with Iran began in February has driven up borrowing costs for G7 nations by tens of billions of dollars. FT research shows G7 countries have locked in an additional $16bn in sovereign debt financing costs due to rising yields since the conflict started. If yields remain elevated, they could pay an estimated $34bn more by Q1 2027.

The US accounts for the largest share, having already paid $10.6bn and facing $21.7bn more if trends continue. Nearly all government bond issues across maturities now trade at higher rates than in February. Rising inflation expectations, energy supply concerns from the Strait of Hormuz closure, and growing public debt burdens are key drivers.

Economists warn that higher rates threaten equity and credit markets, with Mohit Kumar of Jefferies noting further rate rises would be negative for both asset classes. Adam Posen of the Peterson Institute cites political instability, defence spending, demographic needs, infrastructure, green spending, and AI build-out as additional pressures on real rates. While the added costs are small relative to total spending, they strain already stretched government balance sheets and complicate deficit reduction efforts amid upcoming elections in the US and Europe.