Global Yields Are Forecast to Rise in a Bumpy Manner by the World's Largest Asset Manager

With approximately $10 trillion in assets under management, BlackRock’s stance on the U.S. Treasury market holds significant weight—and currently, that stance is decidedly bearish.

‍

The latest budget proposal being debated in the U.S. Senate has reignited concerns over the sustainability of America’s rising debt. Many analysts warn that Republican-backed spending plans could deepen the fiscal deficit. BlackRock has long flagged risks in the Treasury market, particularly regarding long-term bonds. Dating back to 2021, the firm has cautioned about the unusually low, and at times even negative, risk premium that investors receive on longer-duration U.S. government debt.

‍

Now, a group led by Jean Boivin, head of the BlackRock Investment Institute, suggests that this low risk premium is about to reverse. Investors are starting to demand more compensation—known as the “term premium”—for locking their money into long-term government bonds. This trend has become more pronounced across global bond markets in 2025, but Boivin and his team believe U.S. Treasurys are especially exposed.

‍

During the COVID-19 pandemic, central banks slashed interest rates to record lows, helping keep debt payments manageable. However, those ultra-low rates are now gone. As interest rates normalize, the cost of servicing national debt has increased. Meanwhile, inflation pressures are evolving. The initial disruptions caused by supply chain issues have been replaced by concerns over trade tensions and tariff battles, which also feed into inflationary expectations.

‍

According to BlackRock, the U.S. government’s rising debt service burden can no longer be overlooked. The firm estimates that the deficit-to-GDP ratio will likely hover between 5% and 7%.

‍

This projection aligns with Moody’s recent downgrade of U.S. credit and could worsen if the current budget bill is passed. Making matters more complicated is the changing dynamic with key foreign holders of U.S. debt. Nations like China, Japan, and Taiwan—longtime buyers of U.S. Treasurys—are becoming less reliable due to escalating geopolitical and trade tensions.

‍

While attention is currently focused on U.S. 30-year bond yields, which have climbed sharply in 2025, Japan’s long-term bond market has been under strain for even longer. Japanese 30-year government bond yields have also been on the rise as the Bank of Japan pulls back on its long-standing debt purchasing program. This pullback comes just as inflation in Japan is starting to pick up, adding another layer of complexity.

‍

As Japanese bond yields rise, they become more appealing to local investors, potentially triggering a wave of capital repatriation. This shift could reduce demand for U.S. bonds from Japanese investors, further pressuring U.S. yields upward.

‍

The U.K. and European Union are also experiencing similar trends. In both regions, long-term bond yields have been rising due to increased term premia. Central banks in Europe and the U.K. are responding by reducing the issuance of long-term debt in favor of shorter-term instruments, a strategy that gives them more flexibility and lowers immediate borrowing costs.

‍

According to BlackRock, this shift in strategy puts the U.K. and E.U. in a more favorable position compared to the U.S. Boivin’s team points out that bonds from these regions are becoming less sensitive to movements in U.S. Treasury yields. Additionally, the relatively weak economic growth in Europe and the U.K. gives their central banks greater room to lower interest rates, which could support bond prices and limit the rise in yields.

‍

In contrast, the U.S. faces a more difficult balancing act. With higher interest rates, a growing deficit, and reduced foreign demand for its bonds, the government may have to offer increasingly attractive yields to entice buyers. This situation only adds to debt-servicing challenges over time.

‍

In summary, BlackRock sees a growing divergence in global bond markets. The firm favors U.K. and European bonds over U.S. Treasurys due to structural advantages and more manageable economic conditions. Rising term premia are reshaping fixed-income markets, and the U.S., with its expanding fiscal deficit and elevated borrowing needs, is at the center of this shift. Investors should be cautious, as long-term U.S. bonds may face more headwinds in the near future.

‍

‍