The global bond market selloff continued to widen as Japan’s 10-year government bond yield broke above 3% during Tuesday’s Asian trading session, marking the first time since 1996. Markets interpreted remarks by U.S. Treasury Secretary Scott Bessent suggesting the Bank of Japan may be forced to raise interest rates as adding fuel to the cross-border bond selling pressure. At the same time, the United States and Iran exchanged fire again in the Middle East, pushing international oil prices higher and further intensifying inflation concerns. Wall Street closed lower across the board on Monday.

The Dow Jones Industrial Average fell 419.02 points, or 0.79%, to close at 52,766.88. The S&P 500 slid 54.67 points, or 0.71%, to settle at 7,631.47. The Nasdaq Composite dropped 271.12 points, or 1.03%, to close at 26,099.77. The Philadelphia Semiconductor Index suffered the steepest decline, tumbling 246.44 points, or 2.14%, to close at 11,288.61.

The U.S.-Iran conflict became the focal point for markets this week. The two sides attacked each other for the first time in about a month, rapidly escalating tensions in the Strait of Hormuz and sending international oil prices higher. Market participants noted that rising energy prices could force central banks worldwide to maintain a restrictive stance, or even raise rates further to suppress inflation, creating headwinds for both equities and bonds.

Japan’s Bond Market Faces a Critical Test

Japan’s 10-year government bond yield breaking through the 3% threshold represents the most symbolic milestone in this global bond selloff. According to market data, the U.S. 10-year Treasury yield rose 2.8 basis points on Monday to 4.786%, the highest level since January 2025. Global government bond yields climbed for a fourth consecutive trading day to 3.72%, the highest level since 2008.

Bessent’s remarks during the G20 finance ministers’ meeting drew intense market attention. He suggested the Bank of Japan may need to raise interest rates further, a statement interpreted as a signal of U.S. pressure on Japan’s monetary policy. On the Japanese side, market participants observed notable selling pressure in Japanese government bonds during overnight trading, and Tuesday’s 10-year bond auction results became a key market focus.

A Japanese market analyst noted that the 3% yield level is “merely a waypoint,” and investors need to be mentally prepared for a terminal rate potentially around 4.5%. The analyst also mentioned that Bank of Japan Governor Kevin Warsh unexpectedly adopted a hawkish stance at last week’s Jackson Hole symposium, emphasizing that inflation remains a significant economic problem and that the central bank still has more “work to do” — remarks that prompted markets to reprice rate hike expectations.

Multiple Pressures Converge

Behind this global bond selloff lies a convergence of multiple factors. Widening fiscal deficits, rising rate expectations, sticky inflation, and the U.S.-Iran conflict pushing oil prices higher have together created a perfect storm for the bond market.

For equities, rising yields mean higher opportunity costs for holding stocks, directly eroding the appeal of risk assets. The Philadelphia Semiconductor Index’s plunge of more than 2% on Monday reflects the technology sector’s heightened sensitivity to the interest rate environment.

In currency markets, the dollar pulled back from the ¥160 level against the yen (approximately $1), briefly retreating to the mid-¥159 range (approximately $0.99). Market participants noted that while yen weakness presents buying opportunities, investors have turned more cautious given the risk of potential intervention by Japanese authorities.

The G20 finance ministers’ meeting is underway in the United States, with the U.S.-led agenda focused on economic sanctions against Iran and responses to rising long-term interest rates. Market observers believe the United States appears to be seeking Japan’s cooperation on monetary policy, which may be related to prior coordination between the two countries on currency market intervention.

Looking ahead, the results of Japan’s 10-year bond auction will be a key near-term indicator. With yields at 30-year highs, weaker-than-expected auction demand could push yields even higher and create a new wave of pressure on global bond markets. Investors will also closely monitor developments in the U.S.-Iran conflict and the impact of oil price movements on inflation expectations.