3 min readOct 5, 2026 06:00 AM IST First published on: Oct 5, 2026 at 06:00 AM ISTTen-year US and French government bond yields hit 5.34 and 4.99 per cent respectively last week, their highest since 2002, while crossing 3.1 per cent for Japan, the first time after 1996. The increase in borrowing costs for the governments of these countries over the past one year works out to 1.2-1.4 percentage points. That’s roughly twice the 0.7 percentage points rise in the 10-year Indian government security yield, which closed the week at 7.21 per cent. Simply put, investors are demanding higher returns from governments on the tradable debt instruments issued by them that, being backed by the sovereign’s power to tax and print currency, are ostensibly default risk-free. And unlike before, they aren’t differentiating much between the governments of advanced and emerging economies; the bonds of the former are the ones that have surged to multi-decade peaks.There are three reasons for this. The first is the persistent deficits run by developed country governments, due to aging populations, expanded social welfare commitments alongside military build-up, and voter resistance to tax increases or entitlement cuts. The US’s outstanding public debt has surpassed $40 trillion. Its defence budget for 2026 reached a record $1 trillion, with the Donald Trump administration proposing $1.5 trillion of spending for the coming fiscal year. The Washington-based Institute of International Finance has estimated that advanced economies paid over $3.3 trillion in interest on globally traded government bonds last year. The perception of mounting fiscal risk also explains Chinese holdings of US Treasuries falling to an 18-year-low of $618 billion in July 2016, from the peak $1.32 trillion of November 2013. The second reason is commodity inflation from war and weather-induced supply shocks, driving central banks to raise interest rates as well as signal further increases ahead.AdvertisementThe third has to do with the global race for building AI infrastructure. The combined capital expenditure of the four large “hyperscalers” alone — Meta, Microsoft, Amazon and Google — was $410 billion in 2025, while projected at $725 billion in 2026 and $1.1 trillion-plus in 2027. A significant part of this is being funded through debt. As tech companies have turned to the bond markets, it has forced governments to compete ever harder for investor money, driving up yields on even “safe haven” long-term US Treasuries. For India, the implications are two-fold. Policymakers and corporates, for one, must reconcile themselves to global capital being no longer available cheap. Secondly, the importance of fiscal discipline, and the government not crowding out private sector borrowings, applies no less at home.