Global bond selloff drives borrowing costs to multi-decade highs

A widespread global government bond selloff intensified on Tuesday, driving borrowing costs to levels unseen in decades as the collapse of US-Iran peace negotiations reignited inflation fears and pushed oil prices above $91 a barrel.

The 30-year US Treasury yield climbed to 5.333%, its highest since 2007, according to Tradeweb data reported by the Wall Street Journal.

The benchmark 10-year Treasury yield reached 4.748%, a level last seen in January 2025, Japan's 10-year government bond yield touched a 30-year high of 2.955% and yields on Canadian and many European government debt all spiked.

The trigger was the expiration without resolution of the initial 60-day memorandum of understanding between Washington and Tehran.

President Trump ruled out extending the agreement and has since threatened to bomb Oman, which borders the Strait of Hormuz and has been serving as a back-channel intermediary, alleging the country is obstructing a deal.

A cargo vessel was struck in the strait overnight, underscoring how volatile the waterway remains after nearly six months of effective closure. Brent crude rose 0.4% to $91.29 a barrel on Tuesday morning, having traded below $80 just two weeks earlier.

What is driving bond markets

However, the sell-off reflects more than a single geopolitical shock.

Analysts identify at least three converging pressures pulling yields higher, all of which have direct implications for client portfolios including energy and inflation.

The effective closure of the Strait of Hormuz has kept energy prices elevated and is transmitting cost-push inflation across the broader economy. Investors holding long-dated debt are demanding higher yields to compensate for the erosion of purchasing power they now expect to persist.

The second is fiscal stress. The US national debt is approaching $40 trillion, and the cost of financing an ongoing military conflict is adding to a trajectory that bond markets are increasingly unwilling to ignore.

The third factor is structural. Dan Coatsworth, head of markets at AJ Bell, noted in a Tuesday morning research note reported by CNBC that rising long-dated yields "can also reflect concerns around high levels of government borrowing and investors demanding greater compensation for the risks of holding long-dated government bonds" - a dynamic distinct from inflation expectations alone.

Deutsche Bank strategist Jim Reid, in a note reported by CNBC, said there was no single catalyst for the decline over the preceding 24 hours, "but with few signs of the US and Iran coming to any sort of a deal, that meant investors priced in a more extended closure of the Strait of Hormuz. Investors are pricing in a more protracted period of higher oil prices again."

Portfolio implications for advisors

The 30-year Treasury TIPS yield (the real, inflation-adjusted return) reached its highest level since 2008, at 3.09%, according to Global Banking and Finance Review. That means markets are pricing in not a transitory episode but a sustained period of elevated real borrowing costs.

For equity-heavy portfolios, the impact is also material with higher long-term yields compressing the present value of future earnings, and with 10 of 11 S&P 500 sectors declining last session,.

There is, however, a constructive case for income-seeking clients. Newly issued bonds at current yield levels offer the most meaningful real returns in well over a decade.

Retirees and conservative investors, long penalized by a zero-rate world , may find the current environment an opportunity to lock in duration at levels that make sense for long-term financial plans.