Just one week ago, I issued a clear warning that investor sentiment and trading dynamics in the global bond market were undergoing a fundamental shift, with the previously stable market structure now completely fractured. Since the outbreak of the COVID-19 pandemic, the vast majority of Group of Ten (G10) economies have abandoned prudent fiscal discipline, remaining in a state of persistent imbalance, with government deficit levels and sovereign bond issuance volumes far exceeding the reasonable ranges typical of non-crisis periods. After years of continuous accumulation, public debt levels across the world's major economies now sit at historic highs, while market tolerance for high-debt models continues to erode, making a complete loss of patience merely a matter of time. Judging by current market movements, this prediction has now materialized, and the concentrated risk eruption in global bond markets is officially underway.

Over the past full year, I have kept my core research focus on the trajectory of long-term bond yields. Long-end yield movements represent the most authentic and direct pricing feedback from the market regarding sovereign debt sustainability and macroeconomic risk, accurately reflecting the core sentiment of capital markets. The short end of the yield curve is primarily driven by central bank monetary policy expectations, essentially capturing market forecasts for near-term policy tightness and the pace of interest rate adjustments. However, what truly determines long-term market risk and dominates this current upheaval is the long end of the yield curve, which fully incorporates risk premiums such as country-specific risk, inflation risk, and sovereign default risk, making it the central battleground of this global bond market turbulence. The 10-year forward 10-year bond yield — the market's forward pricing of the 10-year government bond yield a decade from now — serves as the key indicator for measuring global long-term macroeconomic and fiscal risk, and this metric is currently surging in unison across all major markets worldwide. Among these, economies with massive public debt stocks, inefficient governance, and severe political infighting are seeing the most dramatic yield increases, with significantly higher risk exposure.

In my analysis last week, I pointed out that Japan's bond market had fallen into deep distress, with risk factors now fully erupting. Market movements have completely confirmed this assessment: over the past ten trading days, Japan's 10-year forward 10-year yield posted the largest gain globally, followed by the United Kingdom, France, and Italy, with Europe's highly indebted economies collectively under pressure. Capital markets are no longer treating the global market as a monolith but are instead precisely differentiating and pricing each country's fundamental conditions, concentrating their assault on fragile economies with weak fundamentals and prominent debt risks.

Market participants are widely asking: what exactly is the core trigger behind this global bond sell-off and yield surge? Multiple external factors have converged to ignite this round of bond market risk. Since the conclusion of the Federal Reserve's latest policy meeting on July 29, the U.S. Treasury yield curve has experienced a remarkably pronounced bear steepening. As the world's core capital market, the rapid rise in U.S. long-end yields has generated powerful spillover effects, directly pushing long-term bond yields higher across all global economies. Simultaneously, the recent sharp surge in international oil prices has further intensified market inflation anxiety and risk-off sentiment, exerting sustained downward pressure on bond markets. Bond markets intensely dislike all forms of macroeconomic uncertainty and geopolitical instability, and the persistently stalled Persian Gulf conflict, showing no signs of easing, has further amplified instability in global energy and financial markets, keeping market risk appetite subdued.

However, in my view, attributing this bond market turmoil to short-term external shocks such as oil price fluctuations or geopolitical conflicts completely misses the essence of the problem. These external shocks are merely the spark, not the root cause. When an economy carries excessive debt for extended periods while maintaining unsustainable massive fiscal deficits, it inherently possesses extreme fragility, and any minor external shock can trigger systemic risk exposure. Ultimately, this global bond market crisis is not a short-term fluctuation caused by sudden shocks but rather the inevitable consequence of years of disordered and unbalanced fiscal policies across nations worldwide.

(Chart: 10-year forward 10-year yield trends, displaying data from nine core developed economies: United States (red), Germany (blue), Japan (black), United Kingdom (orange), Italy (pink), France (light green), Switzerland (dark green), Canada (brown), and Australia (grey).)

Combining the chart data, there are three core conclusions that all market participants and policymakers should closely monitor.

First, the upward cycle in global long-term bond yields began in 2022, when central banks worldwide launched intensive rate-hiking campaigns aimed primarily at suppressing the high inflation triggered by pandemic-era easing policies. In the early phase of this yield uptrend, movements were mainly driven by the short end of the curve, representing a passive response to monetary policy adjustments. However, after several years of evolution, the market logic has completely shifted: long-end yields have decoupled from monetary policy influence and are now following their own independent upward trajectory. The current market volatility is fundamentally driven by rising long-term risk premiums and term premiums, with almost no connection to near-term monetary policy expectations — signaling that markets are now fully pricing in long-term fiscal risk.

Second, an economy's initial fundamental conditions determine the intensity of this risk shock. Countries with massive debt burdens, chronically unbalanced fiscal positions, and clear governance deficiencies are experiencing far greater bond market damage and yield increases compared to economies with sound governance and manageable debt levels. Japan, the United Kingdom, and France are the most typical cases, where fundamental weaknesses are being amplified without limit by the market.

Third, amid the broad global bond market pressure, Switzerland and a handful of economies that have consistently maintained low debt levels and prudent fiscal policies have emerged as the only safe havens, carving out independent and stable market performances. This phenomenon fully validates the long-term value of prudent fiscal policy. Meanwhile, Germany's debt brake mechanism — once celebrated as a cornerstone of fiscal restraint but whose effectiveness has been progressively hollowed out and significantly weakened in recent years — still confers notably stronger bond market resilience compared to most other European nations. The dividends of sound fiscal stewardship are now being demonstrated with exceptional clarity.