Introduction: Global bond sell-off hits Japan
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The global sell-off in longer-term government debt is continuing, as concerns mount over fiscal sustainability and the health of the global economy.
After losses across the bond and equity markets yesterday, there are fresh falls in Asia-Pacific markets today.
Japan is now in the firing line from bond vigilantes, who are driving up borrowing costs (yields) by selling government debt, pushing down prices.
The 30-year Japanese government bond yield has hit an unprecedented 3.255% today, Reuters reports, following the jump in UK, US and eurozone bond yields on Tuesday
Yields on Japan’s 20-year government bonds rose to levels last seen in 1999.
Bond yields especially on super-long-dated 30-year tenors have been soaring around the world, with investors anxious about the scale of debt in countries from Japan to the US. The 30-yr JGB yield hit an unprecedented 3.255%, ffg a run-up in similarly dated gilts and Treasuries https://t.co/LpbRqlDnSN pic.twitter.com/H8MrsBTbAF
— Kong Kong Kubs (@3benson) September 3, 2025
The sell-off appears to be being driven by several factors, including concerns over rising government debt levels, opposition to measures to cut borrowing, sticky inflation, and economic growth prospects.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:
Investors are demanding higher returns to hold bonds exposed to both inflation risk and elevated debt levels. Higher yields, in turn, push up borrowing costs for companies and weigh on valuations.
As a result, equities and corporate bonds also kicked off the week on a weak note.
Bond investors will be watching London and Paris closely today.
Rising bond yields are a political headache for Rachel Reeves, as it eats into the UK chancellor’s headroom to have debt falling in five years’ time. It could force Reeves into further tax rises, despite concerns that this would weaken growth, or spending cuts, despite opposition from her own party.
The potential collapse of the French government next week, in a row over proposed spending cuts, are also worrying investors.
Mujtaba Rahman, managing director for Europe at Eurasia Group, explains:
The French Prime Minister François Bayrou will lose on Monday 8 September a gamble that he was never likely to win and will almost certainly be ejected from office by a parliamentary confidence vote of his own choosing;
President Emmanuel Macron has ruled out a new legislative election—for the time being—and will appoint his fifth Prime Minister in 21 months, almost certainly from within his center and center-right coalition.
The new PM will be obliged to make concessions on Bayrou’s ambitious plans to cut 0.8% of GDP (nominally €43.8bn) from France’s deficit next year.
The agenda
-
9am BST: Eurozone service sector PMI for August
-
9.15am BST: Bank of England deputy governor Sarah Breeden keynote speech at a conference on innovation in money and payments conference
-
9.30am BST: Eurozone service sector PMI for August
-
2.30pm BST: Treasury Committee hearing with Bank of England policymakers
-
3pm BST: JOLTS survey of the US jobs market
Key events
Bad day on Australia’s stock market
Australia’s stock market has suffered its biggest one-day drop since April today, as the bond sell-off rattles traders.
The S&P/ASX share index has fallen by 1.8% today, to its lowest level since early August, despite new data showing Australia’s economy grew faster than expected in the second qwuarter of the year.
Kyle Rodda, senior financial market analyst at Capital.com, argues that the markets were due a pull back:
Seasonality has entered the narrative: for US equities, September is the worst month of the year for the S&P 500, with an average drawdown of nearly 2% over the past 10 years.
But from an Australian and fundamental standpoint, valuations have been eye-watering and far beyond what could be justified by the earnings that were served up by companies last month. On top of that, higher global bond yields are putting the squeeze on global equity prices.
Yields are being driven by a combination of factors: political risk in the US and Europe, loose and arguably unsustainable fiscal settings across several major sovereigns, and upside risks to inflation in the States as traders price-in the risk of a US Fed being stacked with Trump-loyal policy doves.
Shifting rate expectations in Australia probably also contributed to the ASX200’s sell-off. Australian GDP data was stronger than expected, with annual growth rising 1.8% in the June quarter.
Pound under more pressure
The pound is dropping in early trading, adding to sharp losses yesterday.
Sterling has dropped by a quarter of a cent to $1.3366, close to the one-month low touched on Tuesday.
Yesterday the pound lost one and a half cents, its biggest daily drop since April, as the drop in government bond prices rocked the markets.
Introduction: Global bond sell-off hits Japan
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The global sell-off in longer-term government debt is continuing, as concerns mount over fiscal sustainability and the health of the global economy.
After losses across the bond and equity markets yesterday, there are fresh falls in Asia-Pacific markets today.
Japan is now in the firing line from bond vigilantes, who are driving up borrowing costs (yields) by selling government debt, pushing down prices.
The 30-year Japanese government bond yield has hit an unprecedented 3.255% today, Reuters reports, following the jump in UK, US and eurozone bond yields on Tuesday
Yields on Japan’s 20-year government bonds rose to levels last seen in 1999.
Bond yields especially on super-long-dated 30-year tenors have been soaring around the world, with investors anxious about the scale of debt in countries from Japan to the US. The 30-yr JGB yield hit an unprecedented 3.255%, ffg a run-up in similarly dated gilts and Treasuries https://t.co/LpbRqlDnSN pic.twitter.com/H8MrsBTbAF
— Kong Kong Kubs (@3benson) September 3, 2025
The sell-off appears to be being driven by several factors, including concerns over rising government debt levels, opposition to measures to cut borrowing, sticky inflation, and economic growth prospects.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:
Investors are demanding higher returns to hold bonds exposed to both inflation risk and elevated debt levels. Higher yields, in turn, push up borrowing costs for companies and weigh on valuations.
As a result, equities and corporate bonds also kicked off the week on a weak note.
Bond investors will be watching London and Paris closely today.
Rising bond yields are a political headache for Rachel Reeves, as it eats into the UK chancellor’s headroom to have debt falling in five years’ time. It could force Reeves into further tax rises, despite concerns that this would weaken growth, or spending cuts, despite opposition from her own party.
The potential collapse of the French government next week, in a row over proposed spending cuts, are also worrying investors.
Mujtaba Rahman, managing director for Europe at Eurasia Group, explains:
The French Prime Minister François Bayrou will lose on Monday 8 September a gamble that he was never likely to win and will almost certainly be ejected from office by a parliamentary confidence vote of his own choosing;
President Emmanuel Macron has ruled out a new legislative election—for the time being—and will appoint his fifth Prime Minister in 21 months, almost certainly from within his center and center-right coalition.
The new PM will be obliged to make concessions on Bayrou’s ambitious plans to cut 0.8% of GDP (nominally €43.8bn) from France’s deficit next year.
The agenda
-
9am BST: Eurozone service sector PMI for August
-
9.15am BST: Bank of England deputy governor Sarah Breeden keynote speech at a conference on innovation in money and payments conference
-
9.30am BST: Eurozone service sector PMI for August
-
2.30pm BST: Treasury Committee hearing with Bank of England policymakers
-
3pm BST: JOLTS survey of the US jobs market
