Global bond markets came under renewed pressure on Thursday, pushing benchmark government yields to levels not seen in decades, even as equities proved relatively resilient after Micron’s stronger-than-expected results reinforced investor confidence in the spending boom around artificial intelligence.
The 10-year US Treasury yield climbed as high as 5.34%, its highest level since 2002, before dip buyers emerged and pulled it back to about 5.27%. The move extended a historic quarterly selloff that has spread from US Treasuries into government debt markets across Europe and Asia.
The US 10-year yield rose 87 basis points in the third quarter, its biggest quarterly increase since 1994, according to LSEG data. The magnitude of the move has turned the Treasury market into a growing source of pressure for other asset classes because the 10-year yield serves as a benchmark for global borrowing costs, corporate financing and the valuation of stocks.
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The bond selloff is being driven by several forces at once. Higher energy prices are reviving inflation concerns, while stronger economic data and continued investment in AI infrastructure are pushing investors to reassess how high interest rates may ultimately need to remain.
At the same time, the prolonged conflict in the Middle East is keeping oil prices elevated. Stalled peace talks between the United States and Iran have offered little relief, with Brent futures gaining 42% in the July-September quarter and the December contract trading around $100 a barrel.
“We have had a prolonged selloff in bonds — they have been correlated with oil prices and also we’ve had strong US data,” said Rory McPherson, chief market strategist at Wren Sterling. “We don’t have enough buyers who want to buy bonds.”
That shortage of willing buyers has become a serious feature of the market. Investors who previously expected inflation to moderate and interest rates to decline are now confronting the possibility that higher yields may persist for longer, forcing portfolios to absorb significantly greater borrowing costs.
Five-Percent Yields Become the New Fault Line
The speed of the move has been striking in Europe. France’s 10-year government bond yield rose 120 basis points during the third quarter, its largest quarterly increase since 1987. It briefly jumped another 10 basis points on Thursday to 4.96%, bringing it within touching distance of the psychologically important 5% threshold before easing back to 4.82%.
French government finances remain a major source of uncertainty for investors, who are watching the country’s budget process for evidence that policymakers are prepared to address the fiscal pressures behind the rise in borrowing costs.
“The only way really I can see the market being calmed here is if we do see governments taking the hard decisions to cut spending and it doesn’t look like that is going to happen,” said Fiona Cincotta, senior market analyst at City Index.
Japan’s government bond yields have also climbed to multi-decade highs, while Britain’s 30-year yield moved above 6% for the first time since early 1998. The simultaneous rise in long-term borrowing costs across major economies suggests that the pressure is not confined to a single country’s fiscal position or monetary policy.
The critical question for investors is now how long US Treasury yields can remain above 5%. Some are also considering whether the 10-year yield could eventually move toward 6%, a level that would represent a major repricing of the cost of capital across financial markets.
Higher yields can weigh on equity valuations by increasing the discount rate applied to future corporate earnings. They can also raise the cost of financing for companies and governments, potentially creating a feedback loop in which larger interest payments require greater borrowing just as investors demand higher compensation for holding that debt.
Yet equities have so far absorbed much of the pressure.
European shares initially fell sharply, with the STOXX 600 dropping as much as 1.5%, before recovering part of the decline to trade around 0.4% lower. US equity futures remained relatively steady, helped by renewed enthusiasm for AI-related stocks.
Micron Gives AI Trade Another Boost
Micron provided an important counterweight to the bond market’s negative signal. The memory-chip maker, a major supplier to Nvidia and one of the companies benefiting directly from the expansion of AI data centers, reported results that reinforced expectations for strong demand for high-performance memory.
Financial commitments under Micron’s long-term supply agreements rose to $32 billion from $22 billion in June, providing evidence that customers are locking in capacity as AI infrastructure spending continues.
“Micron’s numbers are another strong validation of AI and memory demand, but markets may increasingly be asking whether we are closer to peak memory shortage, even if demand continues to exceed supply,” said Charu Chanana, chief investment strategist at Saxo.
The result points to the unusual divergence currently running through financial markets. Bond investors are now pricing a world of persistent inflation, higher interest rates and greater fiscal risk, while equity investors are still finding reasons to pay elevated valuations for companies positioned at the center of the AI buildout.
Micron’s supply commitments indicate that demand has not yet weakened sufficiently to undermine the investment cycle. But the question of whether the semiconductor shortage is approaching its peak introduces a new risk to the AI trade. If memory supply expands faster than demand, pricing power could eventually weaken even while spending on AI infrastructure remains substantial.
For now, however, the earnings outlook is helping equities absorb a rise in discount rates that would normally be more damaging.
Currency markets are providing another indication of the shift in global capital flows. The dollar strengthened on Thursday as investors moved toward US assets amid the bond selloff. The euro fell as much as 0.5% to its lowest level since May 2025 before recovering some ground, and was last down 0.3% at $1.1297. The pound declined 0.2% to $1.323.
The broader market is therefore approaching a more consequential test. Analysts note that if Treasury yields stabilize around current levels, strong corporate earnings and AI investment could continue to support equities. But if oil remains near $100 a barrel and inflation expectations rise further, the bond market could force investors to reassess how much economic growth and corporate earnings can justify today’s asset prices.
The immediate arrival of dip buyers in Treasuries shows that investors are willing to step in at higher yields, but it is not clear if those buyers can absorb the supply and inflation risk coming from governments, energy markets, and an expanding AI infrastructure economy.