Long-term borrowing costs hit highs as inflation and fiscal deficit fears rise

 AI bonds surge fuels sell-off ▸ Pub lic debt under strain ▸ Fal lout for equit ies ▸ Oil’s rise dims out look

Financial Times Europe19 Aug 2026EMILY HERBERT — LONDON HARRIET CLARFELT — NEW YORK

Long-term bor row ing costs hit mul ti dec ade highs yes ter day as fears over infla tion,fiscal defi cits and sur ging AI bond issu ance put pres sure on gov ern ment debtaround the world.

The yield on 30-year US Treas ur ies hit 5.34 per cent, its highest since 2007, hav ingbeen below 5 per cent at the start of last month. Long-term European debt, led bythe 30-year Ger man Bund and French debt of the same matur ity also rose, to levelslast seen in 2011 and 2008, respect ively. Yields move inversely to prices.

“The bond mar ket is indeed get ting nervous,” said Vin cent Mor tier, chief invest -ment officer at Amundi, Europe’s largest asset man ager, amid “grow ing con cern onthe fiscal tra ject or ies of many coun tries where growth is sub par, infla tion sticky . . .and levers to improve the fiscal situ ation are not obvi ous”.

In the UK, the 30-year gilt yield rose as much as 0.04 per cent age points to 5.86 percent, within touch ing dis tance of a post-1998 high that it reached in the early weeksof the Iran war.

In Japan, 30-year yields rose as much as 0.08 per cent age points to 4.16 per cent,close to their highest ever.

The bond mar ket sell-off, along with higher oil prices, weighed on equit ies. In NewYork, the tech-heavy Nas daq 100 fell 1.5 per cent, while the S&P 500 slid 0.5 percent.

Gov ern ment bor row ing costs have jumped since the start of the US-Iran con flict, ashigher energy prices promp ted fears of a pro longed infla tion shock. Brent crudeclosed above $90 a bar rel on Monday for the first time in two weeks and rose toaround $91.40 yes ter day, weigh ing on sov er eign bonds.

“Long-end yields have largely been fol low ing oil prices,” said Mohit Kumar, chiefEuropean eco nom ist at Jef fer ies. “As oil goes to $90 and above, infla tion con cernsstart to dom in ate.”

Bal loon ing gov ern ment debt has also been weigh ing on long-term bor row ing costs,as the US debt pile nears $40tn and investors fret over the pos sib il ity of addi tionalspend ing to pro tect busi nesses and con sumers from the eco nomic cost of higherenergy prices.“The worsen ing situ ation in the Middle East is likely a factor in intensi fy ing con -cerns over infla tion and con cerns over the US fiscal pos i tion,” said Derek Hal penny,head of global mar kets research at MUFG. “There remains zero appet ite in the USfor address ing the US fiscal pos i tion and that is increas ingly weigh ing on the longend of the curve.”

The shift higher in long-dated bond yields meant that the US last week was forced topay the highest interest rates since 2011 to sell 30-year bonds.

Anshul Pra dhan, head of US rates research at Barclays, said: “We think there arethree factors at play [in the long-end Treas ury sell-off]: the budget defi cit out look,AI-related cor por ate issu ance and the chan ging Treas ury buyer base.”

Big Tech com pan ies have been turn ing to for eign debt mar kets to fin ance theirenorm ous spend ing on AI invest ments, with a par tic u lar focus on issu ing long-dated debt. Barclays expects total invest ment-grade issu ance in 2026 to hit a record$1.9tn, com pared with last year’s $1.44tn.

Pra dhan said that “the scale and matur ity of AI-related cor por ate bor row ing” at thelonger end of yield curves was con trib ut ing to “investors requir ing more com pens a -tion to absorb [cor por ate and gov ern ment] sup ply