Long-term Government Bonds yields in major advanced economies are climbing ominously. In the United Kingdom, Germany, and Japan, long-term yields are hitting their highest levels in decades, emerging as a new flashpoint for global financial markets. Rising long-term yields increase governments' interest burdens and can weaken their fiscal maneuvering room. Korea has not fully moved in lockstep with the global trend yet, but under Lee Jae-myung's expansionary fiscal stance, similar pressures could arise.
◇ U.K., Germany, Japan see surges in 10- and 30-year Government Bonds yields
According to Investing.com on the 23rd, the U.K.'s 30-year Government Bonds yield spiked to as high as 5.72% intraday on the 2nd of this month, marking the highest level in 27 years since May 1998 (in the 5.50% range). After easing slightly to 5.41% on the 17th, it turned higher again, rising into the 5.50% range on the 22nd.
In the U.K., concerns over a fiscal crisis pushed up long-dated Government Bonds yields. According to the Office for National Statistics (ONS), the cumulative fiscal deficit from April to August of this year, the first months of the 2025–2026 fiscal year, totaled 83.8 billion pounds (about 158 trillion won). That is the largest since 2020, when COVID-19 was at its peak.
German Government Bonds yields are moving similarly. Early this month, Germany's 30-year yield rose to 3.42%, the highest since July 2011 (in the 3.3% range). The 30-year yield had been below 3% as recently as early this year, but it jumped after the German government announced large-scale fiscal policy in March, and the uptrend has continued. It eased into the 3.36% range on the 22nd, but it is still the highest in 14 years.
Japan is no exception. After Prime Minister Ishiba's resignation, expectations grew that candidates to succeed would pursue expansionary fiscal policy, sending the 20-year yield to 2.67% and the 30-year Government Bonds yield to 3.30% on the 2nd. Those were up 80 basis points and 100 basis points, respectively, from the start of the year; the 20-year was the highest in 25 years since 2000, and the 30-year approached a record high. On the 22nd, the two figures were still in the 3.17% and 2.64% ranges, respectively.
A surge in long-term yields hits government finances directly. As Government Bonds issuance increases and yields rise, governments' interest burdens snowball. That can lead to wider fiscal deficits and downgrades of sovereign credit ratings.
In fact, in May, Moody's cut the United States' credit rating by one notch to "Aa1" from "AAA," explicitly citing concerns over the fiscal deficit. On the 12th, Fitch also lowered France's sovereign credit rating to "A+" from "AA-," pointing to a weakened capacity of the political system to achieve fiscal soundness due to domestic political instability.
◇ Korea's long-term yields are still low, but anxiety grows on expansionary budgets
Korea's situation is relatively stable. According to the Korea Financial Investment Association, on the 22nd, the 20-year Government Bonds yield closed at 2.804%. It climbed to 2.929% early this month as global yields spiked, but it remains below last November (in the 3.03% range), when Government Bonds yields surged after Donald Trump was elected U.S. president. The 30-year and 50-year also stood at 2.667% and 2.544%, respectively, down from late October last year (2.971% and 2.888%, respectively).
The reason Korea's yields remain low is the issuance structure. The government issues fewer long-dated bonds of 20 years or longer than medium- and short-dated bonds of 10 years or less. In the "2025 government bonds issuance plan" announced by the Ministry of Economy and Finance late last year, 20-, 30-, and 50-year bonds to be issued this year account for around 30% of total issuance. As a result, an "inversion" in which long-dated yields are lower than 10-year yields has persisted.
However, it is too soon to be reassured. The Lee Jae-myung administration has signaled average annual budget increases of more than 5% over the next five years to boost the economy and the new issuance of 232 trillion won in treasury bonds next year. That far exceeds this year's Government Bonds issuance of 207.1 trillion won. If fiscal expansion continues, overall Government Bonds issuance will increase, inevitably intensifying upward pressure on long-term yields.
Another variable that will determine the direction of Korea's yields is whether it will be included in the World Government Bond Index (WGBI). Korea is aiming for implementation in April next year, but the move has already been delayed several times. If inclusion is delayed, overseas investor demand for Government Bonds could fall, increasing upward pressure on yields. FTSE Russell, the index compiler, is scheduled to release its semiannual review report on the 7th of next month. If that report adjusts Korea's WGBI inclusion timeline, market confusion is likely to grow further.
Cho Yong-gu, a researcher at Shinyoung Securities, said the current stability cannot be guaranteed to last long, noting, "Next year's Government Bonds issuance is large, and the market expects that a significant portion of the increased supply will be offset by demand from WGBI inclusion. But if WGBI inclusion is delayed again, there could be a shock to the market."
Cho also said, "The bond market could swing during the process of creating the $350 billion U.S.-bound investment funds promised to the United States," adding, "The magnitude of the shock will vary depending on how the funds are raised, but if it is prepared in cash as requested by the U.S. side, the burden on the domestic financial market as a whole will grow, and there will likely be a sizable spillover to long-term yields."