Yields on 10-year UK government bonds, known as gilts, rose above 5.29% on 2 September, reaching their highest level in 19 years. This follows a trend of rising bond yields, with 30-year US government bond yields exceeding 5.3% in August, the highest since June 2007.
Rising bond yields typically indicate falling bond prices and may reflect a lack of confidence in the issuer's ability to meet payment obligations. Russ Mould, investment director at AJ Bell, suggested that higher bond yields could also be a result of healthy economic growth rates and a return to more typical market conditions.
The current bond sell-off is attributed to several factors, including the threat of higher inflation due to the ongoing Middle East conflict and the increased likelihood of central banks raising interest rates. Matthew Amis, investment director at Aberdeen Investments, noted that markets are currently pricing in three interest rate hikes from the Bank of England over the next year.
Escalating levels of government debt are also unsettling bond markets. US government debt recently surpassed $40 trillion, having been over 123% of the country's GDP in 2025. Oliver Faizallah, head of fixed income research at Raymond James, linked the bond yield spike to recent hawkish comments from US Federal Reserve chair Kevin Warsh on 28 August, which led markets to price in more than two Fed hikes over the next 12 months.