10 Reasons Investors Are Pushing Up Government Bond Yields

More than half of the participants in a "Markets Pulse" survey of 173 respondents last week expected the 30-year US Treasury yield to reach 6% by year-end. Meanwhile, the yield on the Bloomberg Global Aggregate Government Index surged to its highest level since 2000, as global bonds lost 2.7% this year compared to a 13% gain for equities.

The US economy and global growth continue to show resilience despite the war involving Iran and elevated borrowing costs, with manufacturing indicators pointing to robust expansion across major economies. This resilience heightens inflation risks and the likelihood of interest rate hikes, encouraging investors to favor equities, while inflation erodes the real value of future coupon payments and principal received by bondholders.

The US Federal Reserve raised interest rates in September, signaling the potential for further hikes, while central banks in Australia and Japan also raised rates. Higher borrowing costs are also curbing mortgage refinancing and lengthening the duration of mortgage-backed securities, prompting some investors to sell Treasuries to hedge interest rate risks.

The race to build artificial intelligence infrastructure has triggered a borrowing spree, with global corporations issuing more than $400 billion in bonds to finance tech investments this year. These issuances increase competition with governments and other borrowers for investor capital, while infrastructure spending continues to underpin the strength of US growth.

Global defense spending has reached record levels due to the war involving Iran, the ongoing war in Ukraine, and expanding rearmament across NATO, the Middle East, and Asia. According to Bloomberg, the US defense budget reached $1 trillion in fiscal year 2026, increasing government borrowing requirements and bond issuance, thereby putting upward pressure on yields.

The buyer base for US Treasuries is gradually shifting from the Fed and foreign central banks toward private-sector investors, including hedge funds. According to Bloomberg Economics estimates, holdings by the Fed and foreign official institutions relative to US GDP have declined by roughly 12 and 8 percentage points, respectively, since 2020, increasing the market's price sensitivity.