Major advanced economies, such as the United Kingdom, the United States, and France, that drive the global economy are being shaken by national debt issues. As distrust among investors grows regarding these governments' ability to manage their finances properly, bond market rates are rising simultaneously across the globe. When bond rates rise, bond prices fall. This signifies that government borrowing expenses are increasing.
On the 2nd (local time), MarketWatch analyzed that the individual financial problems faced by the United States, the United Kingdom, and France are combining to trigger a global bond market collapse.
The most recent case is the United Kingdom. On the 2nd, the yield on the United Kingdom's 30-year Government Bonds (gilts) soared to 5.72%, the highest level in 27 years since May 1998. As the burden of national debt interest grows, the value of the British pound dropped by more than 1.5% against the U.S. dollar at one point. This is the worst performance among G10 currencies.
Experts analyze that the sharp rise in Government Bonds yields reflects deep concerns about the strength of the United Kingdom's economy. Chronic low growth, the highest inflation rate among the Group of Seven (G7) countries, and a huge fiscal deficit, termed a 'triple whammy,' have increased distrust among investors in Government Bonds. In this situation, the Labor Party government must fill a fiscal gap of £20 billion to £25 billion (approximately 37 trillion won to 45 trillion won) in its budget proposal this fall. Nick Kennedy, a foreign exchange strategist at Lloyds Bank, noted to Reuters, "Investors have begun to demand a higher 'risk premium' for U.K. assets."
Political instability in the United Kingdom has also shaken the market. Recently, Prime Minister Keir Starmer has made key appointments to the Prime Minister's office staff. The market interpreted this as a signal of internal conflict regarding control over fiscal policy. The U.K. Treasury has traditionally balanced the considerable power it holds with the Prime Minister's office. There are growing concerns that this balance could be disrupted if the Prime Minister's office weakens the authority of the Chancellor of the Exchequer. Investors see that if the Chancellor, who has emphasized fiscal soundness, loses influence and the Prime Minister's office gains more power with a political focus, it is likely that the government will choose the latter between 'fiscal soundness' and 'political popularity.' This suggests a greater likelihood of implementing "populist policies" that immediately help approval ratings rather than unpopular austerity measures to fill the immense fiscal deficit. David Jan, a European bond expert at Franklin Templeton, pointed out in a Bloomberg TV interview that "the movements of the Prime Minister's office have raised fundamental questions about 'who is responsible for finance.'"
The issue is not limited to the United Kingdom. The yield on 30-year Government Bonds in the United States also approached the psychological resistance level of 5% on the 2nd. Recently, a U.S. court ruled that the tariffs imposed by the Donald Trump administration were illegal, causing disruptions in securing tax revenue worth hundreds of billions of dollars. Furthermore, the independence controversy between President Trump and the Central Bank (Federal Reserve) has triggered concerns about long-term inflation. When prices rise, bond investors demand higher yields to compensate for losses due to future price increases. George Saravelos, the global foreign exchange research head at Deutsche Bank, warned in a report that "the market is underestimating the risks to Federal Reserve independence."
In France, a political crisis has engulfed the bond market. With a vote of no confidence scheduled for the 8th, political uncertainty has reached its peak, causing the yield on 10-year Government Bonds in France to soar to 3.587%, the highest level in 14 years. The rise in Government Bonds yields is spreading quickly to the entire Eurozone bond market, affecting not just France but also Germany (10-year yield of 2.791%) and the Netherlands (10-year yield of 2.966%). The unique circumstances facing these major economic powers are exacerbating widespread concerns over a 'debt crisis.'
Experts have warned of a 'slowly arriving vicious cycle.' Jim Reid, head of macroeconomic research at Deutsche Bank, analyzed the current situation as a "vicious cycle in which debt concerns raise interest rates and deteriorating debt conditions push rates higher." In the short term, yields on Government Bonds are rising, which also increases government funding expenses, leading to a deterioration in fiscal soundness. In the long term, this could result in tax increases or austerity measures, potentially triggering an economic recession.
Some have voiced chilling forecasts that this could lead to an actual financial crisis. Willem Buiter and Andrew Sentance, former members of the Bank of England (BOE) Monetary Policy Committee, predicted that "a financial crisis could hit the United Kingdom by the end of 2025 or in 2026."