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The global bond rout is driving borrowing costs sharply higher, forcing governments, businesses and households to confront an uncomfortable reality. The age of cheap and abundant credit may be over for years.

Government bond yields have climbed to levels rarely seen in more than a decade.

Germany’s 10 year yield reached its highest point since 2011, Japan’s remained above 3%, United States Treasury yields touched their highest since November 2023 and British gilt yields hit a post 2008 peak.

Heavy sovereign borrowing, renewed inflation fears from an oil price shock and expectations of tighter central bank policy are fueling the selloff.

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“This is the continuation of a medium-term trend that’ll keep going for many years,” said Robin Brooks, senior fellow at the Brookings Institution.

Natalia Lojevsky, managing director at CIFC Asset Management, believes yields could rise further as massive debt issuance collides with inflation risk.

That combination threatens to turn a volatile market episode into a lasting repricing of credit across the global economy.

Governments carrying large deficits and heavy debt burdens are among the most exposed because maturing obligations must gradually be refinanced at higher rates.

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“The most vulnerable sovereigns are those combining large fiscal deficits, elevated debt burdens and reliance on external capital. France stands out among developed markets,” said Masahiko Loo, senior fixed income strategist at State Street Investment Management.

France faces fiscal deterioration, political resistance to meaningful spending restraint and electoral uncertainty.

Emerging markets with simultaneous fiscal and external deficits are also vulnerable as international capital becomes more expensive and selective.

“When debt, deficits and external financing needs collide, markets tend to become far less forgiving,” Loo added.

Governments can adjust debt maturities or repurchase bonds, but financial maneuvering cannot eliminate the fundamental mismatch between relentless borrowing and limited investor demand.

“The higher yields move, the more uncomfortable the long-term fiscal trajectory looks for many countries,” Deutsche Bank wrote in a recent note.

Japan offers an especially stark warning because government debt exceeds 200% of gross domestic product and debt service is expected to consume more than 25% of fiscal 2026 spending.

Companies must also pay more to refinance obligations, fund acquisitions and build new facilities.

Smaller businesses are particularly exposed because they often carry more floating rate debt than larger corporations, allowing higher benchmark rates to reach their income statements quickly.

“The pressure points are the most leveraged ones that are accustomed to free money,” Loo said.

Commercial real estate, private equity backed businesses, direct lending portfolios and weaker software companies were frequently financed under the assumption that capital would remain plentiful and inexpensive.

The artificial intelligence spending boom creates another source of competition for capital as technology companies borrow enormous sums for data centers and supporting infrastructure.

“You have an enormous amount of debt being issued to fund different AI projects, and the issuers of that debt are fairly price insensitive,” said Larry Holzenthaler, senior portfolio manager at Catalyst Funds.

Even financially sound companies face higher hurdle rates, making some factories, data centers and takeovers less attractive.

“That long end of the curve is really important because it drives the cost of capital, not just for companies, but people with mortgages, the housing market,” Holzenthaler said.

Households will encounter the change through mortgages, automobile loans, student debt and other credit, although the burden will be uneven.

Lower income consumers spend more of each paycheck on necessities and debt service, while affluent households can absorb higher payments and earn better returns on savings.

“Have this K-shaped dynamic with respect to consumers. The folks that are going to feel that the most in terms of what’s the percentage of my paycheck that gets spent on a car payment, a mortgage payment, a student loan - lower-income folks are going to feel that a lot more versus a wealthy person,” Holzenthaler added.

The damage may arrive gradually as existing fixed rate loans mature and borrowers refinance.

However, weaker spending by financially strained consumers could eventually spread pain through retailers, service companies and the broader economy.

Stocks have remained resilient amid strong earnings and enthusiasm about artificial intelligence productivity, but rising yields increase the appeal of government bonds and reduce the present value of future corporate profits.

“At some point, higher yields are a painful experience for equities,” Lojevsky said.

“The equity market has been remarkable in the way that it’s been able to look through or look past these rising yields … But eventually, it starts to catch up, and I think that’s what’s happening.”

Expensive growth stocks are especially sensitive because much of their valuation depends on profits expected far into the future.

New bond buyers are the clearest beneficiaries because larger coupon payments provide protection against additional price declines.

Deutsche Bank estimates that the 10 year Treasury yield could approach 5.5% over one year before price losses overwhelm coupon income, while the comparable threshold over two years is about 6.4%.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.