The ongoing global sell-off in sovereign bonds extended its sixth straight session on Wednesday, pushing borrowing costs in Europe, Asia, and North America to multi-year and multi-decade highs due to a volatile combination of military escalation in the Middle East, corporate bond issuance to fund artificial intelligence, and persistent tight central bank policies, triggering a historic outflow of capital from fixed income instruments.

In Europe, the policy-sensitive yield on German two-year Treasury bonds (Schatz) rose for the sixth consecutive day, reaching 2.983%, the highest since 2024.

Long-term bond yields saw an even sharper decline, with benchmark German 10-year bond yields rising to 3.370% (the highest since 2011) and 30-year bonds reaching 3.845%, also the highest since 2011.

French 10-year bond yields (OAT) rose to 4.244%, reaching levels not seen since the depths of the 2008 global financial crisis, as growing budget deficits increased pressure on interest rates across the single currency.

"When traditional borrowing costs rise like this, people holding assets whose value is rising begin to ask a simple question," said Himanshu Sahay, co-founder and chief revenue officer at Arch Lending.

"Why sell or take on more expensive debt when the asset itself can be used as collateral? It's not about timing the market, but about not abandoning long-term growth simply to cover short-term cash needs."

Australian bond yields rose on strong GDP data; JGBs cement a move to multi-year highs

A rout in fixed income markets swept the Asia-Pacific region, where the yield on the benchmark 10-year Australian government bond jumped to 5.205%, the highest since 2011.

The sell-off in Australian bonds gained momentum after the release of robust gross domestic product data and unexpectedly high July inflation data, which fueled expectations that the Reserve Bank of Australia will hike its fourth interest rate before the end of the year. Meanwhile, the yield on 10-year Japanese government bonds remained above 3.000%, reaching its highest level since 1996. This represents a historic transformation for a debt market that for decades boasted the lowest sovereign yields on the planet under the Bank of Japan's ultra-loose regime.

Tokyo now faces intense public and private pressure from Washington to aggressively tighten monetary policy, with American officials arguing that higher yields on Japanese bonds are necessary to stabilize the yen and curb capital outflows.

The Hormuz standoff and oil price surge are changing the rules of the game for safe-haven assets.

The global bond selloff reflects a fundamental breakdown in traditional asset dynamics. Instead of serving as a shock absorber or safe haven during geopolitical crises, sovereign securities are being aggressively dumped by institutional investors as direct military clashes between the US and Iran threaten a prolonged inflationary shock caused by rising energy prices.

Markets remained on high alert after Washington launched another round of airstrikes against Iran's Islamic Revolutionary Guard Corps—the second direct attack on Iranian targets this week—following Iran's retaliatory missile strikes on US airbases in Jordan. The two countries remain locked in a tense standoff over the Strait of Hormuz, where, despite US assurances that the waterway remains open to commercial shipping, maritime tracking data shows vessel traffic at a fraction of pre-war levels.

With US President Donald Trump warning of significantly harsher strikes if Tehran retaliates—and openly threatening targeted action against Kharg Island, Iran's main crude oil export hub—global benchmark energy prices have soared above $90 per barrel.

The prospect of a prolonged blockade of one of the world's most important oil transit arteries threatens to directly impact transportation costs and consumer fuel prices, reigniting cost-push inflation and seriously undermining the ability of central banks like the Federal Reserve to keep interest rates stable, let alone lower them. A Tsunami of Corporate AI Bonds Floods Capital Markets

In addition to the macroeconomic headwinds caused by the Middle East energy shock, global debt markets are also buckling under an unprecedented tsunami of corporate bond supply.

Tech giants and multinational conglomerates are raising debt capital in the markets at record speed to finance capital expenditures on artificial intelligence infrastructure, data center construction, and the procurement of advanced semiconductors.

This historic wave of high-quality corporate bond issuance is directly competing with sovereign Treasuries, Bunds, and JGBs for institutional capital, while major central banks are actively reducing their balance sheets through quantitative easing.

As sovereign and corporate issuers simultaneously flood the market, global dealing desks are demanding significantly higher term premiums to absorb the oversupply, ensuring that sovereign bond yields continue to rise to levels not seen in decades.