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Large-scale Long-Term Bond Sell-off Forces a Severe Budgetary Reassessment

Large-scale sell-offs in long-term government bonds have forced a major budget reassessment. Yields on key bonds surged to levels not seen in years or even decades: US 30-year Treasuries hit around 5.25% (highest since 2001), while German 30-year Bunds approached 3.73% (highest since 2011). French long-term yields returned to levels last seen during the global financial crisis, and Japan's 5-year government bond yields broke above 2.14%, signaling a departure from years of ultra-loose monetary policy. The era of ultra-cheap money, sustained by central bank stimulus post-2008 and during the pandemic, is ending. Investors now demand higher compensation for lending over decades, seeking protection against inflation, heavy bond issuance, and currency devaluation. Market patience with fiscal dysfunction is wearing thin, as seen in soaring yields for highly indebted European nations like France. The pressure stems from widening fiscal gaps in major economies (US, France, Japan), which face rising spending on defense, infrastructure, energy, and aging populations. In the US, annual federal interest payments now exceed $1 trillion. As central banks reduce bond holdings via quantitative tightening, they are withdrawing as major buyers. Governments are flooding the market with new debt, forcing private investors to demand higher yields—a rising term premium. The impact extends beyond government budgets: higher long-term yields push up mortgage rates, increase borrowing costs for corporations, pressure stock valuations, and redistribute resources away from entities accustomed to cheap money.

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