Government borrowing costs from the United States to Germany and Japan hit fresh multi-decade peaks on Thursday amid heightened worries about inflation, rising interest rates, and nations' debt loads. The 10-year US Treasury yield reached 5.34% on Thursday, marking its highest level since 2002 and posting the biggest quarterly rise this century in the third quarter with an increase of almost 90 basis points, or 0.9 percentage points.

French 10-year bond yields hit their highest levels since 2002, Britain's 30-year borrowing costs touched 6% for the first time since 1998, and Japanese bond yields reached multi-decade peaks. A renewed rise in oil prices driven by US-Iran tensions is pushing yields higher as elevated inflation leaves traders braced for more interest rate hikes, adding to concerns about governments' rising borrowing and spending needs.

The US debt pile has topped $40 trillion, while debt as a share of economic output is at or above 100% across the G7 group of major economies, bar Germany. Five of the biggest AI hyperscalers - Alphabet, Amazon, Meta, Microsoft, and Oracle - have issued $220 billion of debt this year to fund data centre and model investments, more than double last year's total, according to LSEG data, with a surge in bond sales to fund AI investments also pushing up yields through the laws of supply and demand.

Elevated bond yields set the tone for borrowing costs across economies, squeezing households, companies, and government finances while making borrowing and spending less attractive. The rate on the most popular US home loan rose last month to its highest in more than two years and pierced the 7% level for the first time since the first week of President Donald Trump's current term in office.

Britain's interest bill of almost 4% of output is roughly double its pre-pandemic decade average as governments face higher costs to roll over debt, according to its fiscal watchdog in March. Major economies now spend more on interest expense than the world invests in either AI, defence, or clean energy, the Institute of International Finance reports, while US Treasury Secretary Scott Bessent says worries about rising debt and yields overlook US economic strength.