Long-term rates may soon reach 3% on rate-hike expectations and fiscal deterioration, while huge bond issuance by tech giants drives rises in the US and Europe

The market yield on newly issued 10-year Japanese government bonds, a benchmark for Japan's long-term interest rates, rose to 2.945% on the 18th, while the closing yield on the 19th was 2.895%, keeping it at around a 30-year high. Expectations are spreading in the market that it will soon reach 3%. The rise in interest rates is attributed to expectations of a Bank of Japan rate hike and further rate increases, as well as concerns about worsening fiscal conditions.

Long-term interest rates have also remained high in the US and Europe, with the US 10-year Treasury yield approaching 4.74% and the 30-year yield also reaching elevated levels. Bond issuance by major technology companies to fund data center investment has increased, prompting broader expectations of weaker demand for government bonds. Bond issuance by Alphabet, Google's parent, and other companies is expected to total about $220 billion in 2026, a substantial increase from the previous year.

The US Treasury announced that it would expand the limit on buybacks of long-term Treasury bonds, which had a certain impact on long-term interest rate trends. In Europe, long-term interest rates have also remained elevated, at around 4.1% in France, in the high 3.2% range in Germany and in the 5% range in the UK. Overall, analysts have pointed to a tendency for rising overseas interest rates to drive higher rates in Japan as well.

As for the outlook for financial markets, rising long-term interest rates could benefit depositors but increase the burden on borrowers. There are concerns that higher import prices and increased interest payment burdens in particular could affect households and small and medium-sized businesses.