Bonds have been under pressure since the start of the U.S.-Israeli war on Iran but yields have hit multi-year highs in recent months on worries about rising debt loads in big economies, including the United States.
Governments are borrowing heavily after a jump in spending during the pandemic and Ukraine war energy crisis. They also face ageing populations, rising welfare bills, and higher defence investment needs.
Britain's new government, led by Prime Minister Andy Burnham, will present a budget in October, while France is gearing up for further battles over its next budget.
And in Japan, the bond yield surge has put the spotlight on Japanese Prime Minister Sanae Takaichi and her aggressive investment plans.
The moves have raised the spectre of "bond vigilantes", investors who seek to impose fiscal discipline on governments by demanding sharply higher compensation to hold their bonds.
"The fear is that the bond vigilantes are on the loose and driving yields higher in protest over large government deficits," said Ed Yardeni, president of Yardeni Research.
"We share the bond vigilantes' concerns, but we aren't convinced bond yields are, or will soon be, prohibitively high," said Yardeni, who coined the term in the 1980s.
He said that if U.S. 10-year yields hit 5%, he expected Treasury Secretary Scott Bessent to issue more shorter-dated debt to buy back longer-dated bonds to calm markets. On Wednesday, the 10-year Treasury yield US10YT=RR was flat at 4.7961%, about 1 basis point off its 2025 high.
The U.S. Treasury stepped into markets last month to cool long-end bond yields, though the impact was short-lived and 30-year Treasury yields US30YT=RR are back near 19-year highs.
State Street's Metcalfe said the selloff in bonds was "orderly".
Nick Ferres, chief investment officer of Vantage Point Asset Management in Singapore, said rates could start to cause pain for public and private borrowers, with higher yields also weighing on stock valuations.
Global stocks have broadly been supported by strong earnings, although they have weakened this week.
Higher yields can make bonds look more attractive and particularly dent the appeal of companies whose earnings potential lies far in the future, given the better return available on safe assets.
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