New storm in the debt markets, as well as in international stock markets. The US ten-year bond exceeds 5% for the first time in Donald Trump’s second term; and the shock is also felt in European debt which, although more protected than the US one by the European Central Bank’s shield, also suffers a rise in yields. The Spanish ten-year bond surpasses 4% for the first time since 2013 and enters the dangerous group that exceeds this psychological threshold in which Greece, Italy, and France were already included. Portugal maintains a lower interest rate and risk premium than Spain. Another symptom is that the German bond exceeds 3.5%, an unusual level also in the eurozone’s first and healthiest economy.
The biggest indicator at the moment in the international market is that the yield on the US Treasury ten-year bond reached 5.004% this Monday amid the Iran war and on the eve of possible Federal Reserve rate hikes.
The yield on this bond, a benchmark for fixed loans and mortgages, had only briefly surpassed this barrier in October 2023 and previously in 2007. Its rise is a setback for Trump just like the spiral in gasoline prices.
This threshold puts the US economy in a critical situation and threatens to increase borrowing costs for individuals and companies.
The war in the Middle East, and especially the rising price of oil, are causing growing doubts about the state of public accounts of the states and investors are increasingly demanding higher yields to buy bonds. The prospect that central banks will be forced to raise the cost of money for a prolonged period to combat inflation is also being priced in.
Given expectations that the Fed will raise the cost of money, investors seek higher returns to buy US debt, which faces growing competition from the Artificial Intelligence sector, which is also borrowing to finance its growth. All this puts downward pressure on sovereign bond prices and upward pressure on their yields.
Meanwhile, the 2-year bond, which serves as a thermometer of the Fed’s decision, rose 2 basis points to 4.666%, and the 30-year bond, which reflects long-term risk, advanced 2.3 points to 5.377%.
There is a correlation between fixed income and equity markets. “Higher yields are creating stronger headwinds for borrowers worldwide,” says, for example, Chris Turner, global head of markets at ING. “When the higher cost of capital starts to be reflected in forecasts and corporate results, it will probably be then when stock markets suffer more widespread pressure”.
The yield of the Spanish bond
The yield on the Spanish sovereign bond maturing in 10 years has broken the psychological 4% barrier for the first time since 2023 and is at 2013 levels. With this data, the risk premium against German debt stood at 46.34 basis points. It is a short distance in historical terms, but what becomes relevant is not so much the distance with the German bond, but the real cost of public debt, because it extends to the rest of the economy.
The rise in the Spanish case comes after Standard & Poor’s and Fitch decided not to raise Spain’s rating further due, among other factors, to the “political deadlock” that prevents the Government from presenting Budgets and a credible long-term fiscal framework. The European agency Scope did raise the rating, but it has less impact on the markets. Spain fails to be an exception, despite its high economic growth, to the upward movement in yields.
Sources from the Ministry of Economy point out that the current situation is not comparable to that of 2013. “With an average life close to 8 years and only 13.5% of the portfolio exposed each year to rate changes, increases are transmitted very gradually. The average cost of the portfolio is 2.43%, barely 80 basis points above the 2021 minimum and far from the 4.07% of 2011; and the financial burden of all Public Administrations closed 2025 at 2.39% of GDP, below 2024 and far from the 3.56% peak of 2013”. However, a Funcas study forecasts that the State will increasingly have to dedicate more money to paying interest on the debt and will reach a record 60 billion annually by the end of this decade, 50% more than now.
Meanwhile, Bankinter analysts specify that the rise in energy prices “foretells elevated inflation for longer.” “This scenario, combined with low fiscal credibility (where Bessent buybacks in long tranches are considered only a patch) and competition for savings from tech companies, push sovereign IRRs — internal rates of return — upward,” they add.
At the beginning of September, the yield of the Bloomberg Global Government Bond Index, which groups the main sovereign bonds worldwide, climbed to 3.72%, its highest level since mid-2008.
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