Bonds: 30-year US Treasury at 5.65%, sell-off in Europe and Japan – Yields at decade highs

The yields on US government bonds recorded a fresh rise today, Thursday, October 1, with US Treasury yields touching two-decade highs for a seventh consecutive session. The easing of oil prices offered temporary breathing room to the bond market, which just concluded its worst quarter in over three decades. Investors are now bracing for an environment of higher interest rates, as inflationary pressures remain firm and expectations for Federal Reserve monetary policy shift dramatically.

87 basis points surge in the 10-year Treasury

According to LSEG data, the yield on the US 10-year Treasury jumped by 87.1 basis points in the quarter ending in September. This represents the largest quarterly increase since 1994, highlighting the intensity of the pressures exerted on sovereign debt markets. The yield on the 10-year US bond, a key global benchmark for borrowing costs and asset valuations, sits at its highest level since 2002 as the sell-off in global bond markets intensified. According to LSEG data, the yield on the 10-year paper was up 4 basis points to 5.3338%. The movement was even more pronounced at the long end of the curve. The 30-year Treasury yield crossed 5.65%, reaching its highest point since 2002.

Heavy pressure on Japanese bonds as well

The sell-off is not limited to the US. In Japan, where inflation is taking root after decades of fighting deflation, government bond yields recorded double-digit increases for a fifth consecutive quarter, an unprecedented development. Rising yields translate to falling bond prices. Yields have climbed worldwide as surging energy costs feed inflation, while an explosion in AI investment and data center construction boosts economic growth expectations. As a result, markets are re-evaluating where short-term rates will ultimately land.

Strong sell-off in Eurozone bonds

Severe pressure is being recorded today, October 1, 2026, in the Eurozone government bond market, with yields moving higher and investors raising risk pricing. Sentiment in the bond market is burdened by the global rise in yields, with European sovereign debt following the sharp moves registered in international markets.

Greek 10-year at 4.56% – Spread at 92 basis points

The yield on the Greek 10-year bond stands at 4.56%, while the corresponding Italian 10-year is moving at 4.72%. The yield differential between Greece and Italy thus stands at -16 basis points, as the Greek 10-year continues to offer a lower yield than the Italian equivalent. At the same time, the yield spread of the Greek 10-year against the corresponding German paper, the Greek spread against the Bund, sits at 92 basis points. The yield on the German 10-year is hovering today, October 1, 2026, at 3.64%.

Greece – Italy: Differential at -16 basis points

On the spread front, the Greece–Italy differential is at -16 basis points, with the Greek 10-year yield staying below its Italian counterpart. Meanwhile, the Greece–Portugal spread stands at 47 basis points. This picture emerges during a period when the overall Eurozone sovereign bond market remains under heavy pressure.

Severe deterioration in Eurozone bonds

Pressures are broad-based and not confined to Greek paper. The Italian 10-year bond stands today, October 1, 2026, at 4.72%, while the German 10-year sits at 3.64%. The increase in European bond yields reflects a broader shift in the investment landscape, with the cost of money and global yields staying at elevated levels.

European bond yields

The picture across key Eurozone sovereign debt markets is as follows:
Germany 10-year: 3.64%
Greece 10-year: 4.56%
Italy 10-year: 4.72%
Spain 10-year: 4.21%
Portugal 10-year: 4.09%
Ireland 10-year: 3.77%
Cyprus 10-year: 4.15%

Why rising interest rates trigger alarm

The path of yields holds vital importance for the global economy. Higher interest rates mean increased funding costs for businesses and elevated monthly payments for mortgage borrowers. At the same time, the cost of servicing public debt swells, constraining available funds that could be directed toward social spending and public policy. Given that US Treasuries serve as a benchmark for global markets, rising yields gradually spill over into other asset classes.

U-turn in expectations for the Federal Reserve

Traders have rushed to revise their projections for US rate cuts. Following last month's hike, markets are now pricing in at least three more rate hikes by the Federal Reserve through mid-2027. This shift is significant, as until recently investors had priced in a completely different trajectory centered on a gradual easing of rates. The bond market faces a new reality: the return to a low-rate regime is delayed, while inflation and heavy investment in the AI economy fuel expectations of higher rates for longer.

Andrew Lilley: "The end is in sight"

Andrew Lilley, head of rate strategy at investment bank Barrenjoey, believes that the major correction in the Treasury market was essentially inevitable. "It was the Treasury bear market that had to happen," he noted. As he explained, the market had remained for a long time in an "unstable equilibrium" where core inflation stayed at unsustainably high levels without an adequate response from the Federal Reserve. "We had stayed in this unstable equilibrium where core inflation was unsustainably high and yet the Fed didn't act," he said. Lilley considers that the market may be approaching the end of this period of intense stress. "I would say the end is in sight," he stated. However, he warned that higher bond yields could begin exerting greater pressure on other markets, as investors now have a more attractive return level available in government bonds.

Pressures in Europe and Asia

Pressures on the bond market spread beyond the US on Thursday. Futures on European government bonds moved lower, while bond markets in Australia, South Korea, and Japan also came under pressure. The international sovereign debt market finds itself at a critical juncture. The surge in US Treasury yields to levels unseen since the early 2000s brings back to the forefront the cost of capital, inflation, and fiscal sustainability across major economies. The overarching question for markets now is whether the yield spike is approaching its peak or if the sovereign sell-off has further room to run as investors recalibrate rate expectations through 2027.

Why bonds are driving the biggest crash in history

With US bond yields skyrocketing to record levels, well-known analyst Quoth the Raven (Chris Irons) warns of an unrelenting economic slaughter ahead. The explosive rise in borrowing costs and astronomical debt levels threaten to pop the stock market bubble, making a sweeping crash mathematically inevitable. When the fundamental mathematics of the market take over, Wall Street will face unprecedented financial wrath. Specifically, as Quoth the Raven vividly writes, "far from hedging my bets and saying the AI bubble could burst in 6 to 10 months… which I still believe… I've moved to a stark statement: if the bond market keeps acting like this, equity markets are going to get slaughtered. And when I say slaughter, I mean an act-of-God type event. This isn't even a complex theory. After all, if I can state it, it can't be. It's just basic math." As noted, US Treasuries suffered heavy losses on Wednesday, September 24, pushing the 10-year yield up about 14 basis points to 5.11%, after touching an intraday high of 5.14%, its highest since 2007.

The 30-year yield climbed to around 5.4%, while the 2-year reached roughly 4.9%.

This marks the latest leg of a bond sell-off unfolding over months, with the 10-year yield alone rising around 35 basis points in September, pushing long-term borrowing costs to levels not consistently seen since before the Global Financial Crisis. Inflation fears, government borrowing needs, surging oil prices, and expectations of additional Fed rate hikes are driving this move. In other words, the bond market is constantly trying to send a message, while equity investors continue to cover their ears. Yet the bond market is not the stock market. You cannot play it using call options, you cannot ignore it, and you cannot manipulate it—at least not without massive systemic consequences. US stock markets carry a total capitalization of around $70 trillion, but they ultimately rest on the price of money established in the bond market.

US Treasuries alone exceed $30 trillion, and their yields determine mortgage rates, corporate borrowing costs, private equity financing, government debt servicing costs, and ultimately what investors are willing to pay for a dollar of future corporate earnings. Stocks can ignore these mathematics for a while. They cannot ignore them forever. It is that simple: as long as long-term rates keep climbing, almost every major financial calculation worsens simultaneously. The discount rate used for stock valuations increases, making future earnings worth less today. Mortgages become pricier. Corporate borrowing grows more expensive. Private equity and private credit deals—many of which are already completely FUBAR without showing it yet—become harder to fund. Highly leveraged companies must refinance their debt at higher rates. Consumers pay more to borrow, and the US government spends more servicing its mountain of debt. Rising rates act as a slow, methodical destroyer of everything built on cheap money. "Kind of like… the entire economy of the last two decades—especially after the Fed turned into full MythBusters during Covid, refusing to accept the reality of the economy's death and replacing it with its own reality by covering everything with $4 trillion in freshly printed money—a real shit sandwich, because bonds are becoming increasingly attractive competitors to stocks," the analyst notes, adding: "Of course, there is no alarm sounding to trigger an immediate crash, but there comes a point where enough pressure builds that something breaks. If things continue along this path, that point will undoubtedly arrive before year-end. Let's not forget we enter this experiment carrying an almost comical amount of debt. Total US federal debt has crossed $40 trillion. The CBO expects the government to run a deficit of around $1.9 trillion in fiscal year 2026, with public debt hovering around 101% of GDP. Net federal interest outlays are projected to reach roughly $1 trillion this year, with the CBO expecting them to hit $2.1 trillion by 2036. We are already borrowing massive sums partly to pay interest on money borrowed in the past, while the rate at which this debt is refinanced keeps climbing. It's simple math. The Federal Reserve reports domestic non-financial debt reached roughly $84 trillion in Q2: $21.4 trillion in household debt, $24 trillion in business debt, and $38.7 trillion in government debt. Every additional turn of the rate screw matters when applied across such colossal sums."

What if we bought even more…

And then we get to Wall Street, where the apparent reaction to historically expensive stocks has been: "What if we bought even more using borrowed money?" FINRA margin debt stood at roughly $1.45 trillion in August, up roughly 37% year-over-year after reaching a record $1.50 trillion in June. Leverage works brilliantly—until it stops working. As stocks rise, collateral values increase, investors borrow more, and those borrowed funds are used to buy even more shares. Look at margin debt relative to GDP:

Now reverse the arrows. Stocks drop, collateral values decline, margin calls start squeezing, and people sell because they are forced to. Selling triggers further selling. That is how leverage converts a correction into an avalanche. Finally, this is where I believe a much larger conceptual error is being made. Everyone has spent the last 15 years assuming we would eventually return to the post-crisis financial regime: zero interest rates, endless liquidity, cheap leverage, and central banks propping up asset prices. What if we don't go back? What if this is the moment of reckoning? QE1 started in 2008. Further quantitative easing followed, alongside zero rates, negative yields abroad, Covid fiscal stimulus, trillions in government spending, and one of the largest expansions of financial assets and leverage in history. For years, critics of monetary policy argued that we weren't eliminating the consequences of excessive debt—we were simply delaying them. Perhaps the bill has finally arrived. As Schiff says, maybe this is "The Real Crash." The private credit market is already giving us small tastes. Consumers are not sitting on a Fort Knox either. Americans hold roughly $18.8 trillion in household debt, including $1.26 trillion in credit card balances and $1.71 trillion in auto loans. About 7% of existing credit card balances transitioned into serious delinquency on an annualized basis during the second quarter. Now add higher interest rates to all of this.

Yet against this backdrop, financial markets somehow decided this is a great time to lose their minds completely. AI infrastructure is increasingly financed through massive amounts of debt, leases, guarantees, and special-purpose vehicles. Recent reports have identified hundreds of billions of dollars in AI exposure backed by guarantees designed to keep financing off Big Tech balance sheets, while broader estimates of off-balance-sheet liabilities tied to the AI ecosystem reach trillions. The bond market is already starting to catch on, with credit default swaps for hyperscalers touching new all-time highs:

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