Global bond rout deepens as Japan yield hits key threshold

On September 1, Japan's benchmark 10-year bond yield crossed the 3% mark for the first time since 1996, amid a global bond rout triggered by concerns over inflation, monetary tightening, and worsening fiscal conditions. The Middle East crisis further fueled price pressures, causing yields to surge worldwide from Tokyo to London.

Investors anticipate central banks raising interest rates due to the rising yields, which occur when bond prices fall. This has left policymakers facing a conundrum as markets grow sensitive to fiscal profligacy, particularly in Japan, where the government's debt load is enormous. The 10-year Japanese government bond yield reached 3%, a fresh three-decade high, while the five-year rate hit a record 2.26% and the two-year yield peaked at 1.795%.

The U.S. 10-year Treasury yield also hit its highest since January of last year at 4.786%. The sharp rise in yields creates a dilemma for policymakers, as they must balance the need for aggressive investment amidst fiscal concerns. Investors are demanding greater compensation for duration as they compete for the same capital, and Japanese bonds are no longer seen as the stable global benchmark they once were.