It’s Not Just America: Why Are Long-Term Rates Rising Around the World?
For years, the developed world became accustomed to extraordinarily cheap long-term money. Germany and Japan spent long stretches near zero, U.S. Treasury yields fell below 2%, and central banks bought enormous quantities of government bonds.
That world appears to be gone. Long-term government bond yields have risen sharply across the United States, United Kingdom, Germany, Canada, and Japan.
That raises a bigger question than simply “Why are U.S. Treasury yields so high?”:
Why are long-term rates rising across so many developed economies at the same time? And if long-term inflation expectations are not especially high, how much of this new regime is really about higher real rates and higher term premia?
This Is Bigger Than the Fed
One easy explanation for high U.S. yields is Federal Reserve policy. That explanation is incomplete. The Fed controls the overnight policy rate much more directly than it controls ten-, twenty-, or thirty-year yields.
Long yields have risen not just in the United States, but also in Britain, Germany, Canada, and Japan. The OECD reported this year that 30-year government bond yields across OECD countries rose substantially through 2025, reaching a median of about 4.1%, with elevated real yields playing an important role.
Different countries have different fiscal policies, central banks, inflation histories, and political environments. Yet their long-term borrowing costs have moved in a remarkably similar direction, suggesting common global forces underneath country-specific stories.
Governments Are Asking Markets to Absorb Much More Debt
One of those forces is supply. Governments are issuing enormous quantities of bonds, with sovereign borrowing and outstanding government debt reaching record levels in 2025.
For much of the post-financial-crisis era, central banks absorbed a large portion of that supply. Today, private investors increasingly have to—and private investors require higher yields to do it.
More government borrowing is meeting less price-insensitive central-bank demand.
The result can be higher long-term yields even if short-term policy rates eventually come down.
Central Banks Are No Longer Suppressing Long Rates the Same Way
For years, quantitative easing fundamentally changed government bond markets by removing duration from private markets and pushing long-term yields lower. Now that process has reversed:
- Bank of England: Continues reducing the gilt portfolio accumulated through its Asset Purchase Facility.
- European Central Bank: Allowing parts of its bond holdings to mature without full reinvestment.
- Bank of Japan: Reducing Japanese government bond purchases as it steps away from policies that kept long-term yields near zero.
The private market is increasingly being asked to absorb bonds that central banks previously held themselves, removing one of the strongest forces that held yields down.
Japan May Be the Clearest Sign That the Old Regime Is Ending
For decades, Japan seemed to prove that government bond yields could remain near zero almost indefinitely through yield-curve control and heavy intervention.
That regime is now being unwound. Japanese long-term yields have risen sharply from their old near-zero range as the BOJ has reduced purchases and allowed greater market determination of rates.
Japan's move reinforces the idea that we may be observing the end of a broader monetary era rather than an isolated U.S. Treasury-market problem.
The Term Premium Is Back
A long-term bond yield is not simply the market's prediction of future policy rates; investors also demand compensation for committing money for a long period under uncertainty. That compensation is called the term premium.
During much of the ultra-low-rate era, estimated term premia were extraordinarily low and sometimes negative. Now that appears to be changing: the OECD estimates that the average 10-year term premium across major sovereign issuers rose to around 0.84% at the end of 2025, its highest level in more than a decade.
Why are investors demanding more compensation?
- Larger government borrowing needs
- Greater uncertainty about future inflation and interest rates
- Reduced central-bank bond purchases
- Weaker demand for long-duration assets
- Increased concern about fiscal trajectories
Investors want to be paid again for taking duration risk.
Real Interest Rates Have Changed Too
A nominal bond yield can be thought of as containing three key components:
Expected Inflation + Expected Path of Real Short Rates + Term Premium
Long-run inflation expectations remain far more contained than nominal Treasury yields themselves, while real yields measured through inflation-protected Treasuries have risen dramatically from negative levels.
Long-term borrowing is expensive not simply because markets expect inflation, but because the real cost of capital has increased.
A world of structurally higher real rates affects mortgages, corporate investment, stock valuations, government interest expense, infrastructure finance, and household borrowing—and higher real rates do not automatically disappear just because inflation moderates.
Fiscal Pressure Matters—But It Is Not the Whole Story
Higher debt levels and large deficits increase bond supply, higher borrowing costs increase government interest expenses, and concern about future fiscal sustainability causes investors to demand additional compensation.
However, we must distinguish between two levels of influence:
Common Global Forces: Higher real rates, more bond supply, less central-bank intervention, and higher term premia across developed nations.
Country-Specific Amplifiers: Individual fiscal deficits, inflation histories, demographics, and local political environments.
This Is Not a Sovereign Bond Crisis
Bond markets are still functioning, governments continue to issue debt, investors continue to buy it, and financial stress measures remain relatively subdued.
The evidence does not support a "breaking" bond market. A better interpretation is that investors are demanding a higher price to lend for long periods. That is a repricing, not a crisis.
The Era of Artificially Cheap Long-Term Money May Be Over
The post-2008 forces that pushed yields downward (weak inflation, zero policy rates, central-bank buying, low term premia) have largely reversed.
The core question is no longer “When do we get back to the ultra-low rates of the 2010s?”, but rather:
What if those rates were the unusual period?
What Should We Watch Next?
If long-term inflation expectations are relatively contained, then high nominal yields cannot be explained by inflation alone.
Inflation expectations look fairly normal. Why are real interest rates still so expensive?
That leads directly into our next exploration.