Bond Yields Are Spooking Wall Street, but Europe Has an Even Bigger Problem

French President Emmanuel Macron and British Prime Minister Andy Burnham. (Leon Neal/Getty Images)

Soaring bond yields are a source of unease for U.S. investors—and they’re sparking even more of a panic across the Atlantic.

The run-up in borrowing costs will make life harder for governments in Europe, where fixed-income investors already held fiscal policy in a vice grip.

Yields ticked up on the continent over the summer, and they were advancing again on Monday. The yield on the U.K.’s 10-year gilt was approaching 5.10%, while the French 10-year yield hit 4.23%.

Barron’s argued in July that keeping investors happy should be a top priority for Britain’s new Prime Minister Andy Burnham. The market has form for toppling U.K. leaders—in 2022, Prime Minister Liz Truss resigned after just 45 days after her plans for tax cuts drove up yields.

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In France, yields are nearing their highest level in almost two decades due to concerns about repeated budget battles and political instability, while borrowing costs have also soared in Germany and Italy.

The selloff in bonds has been a global problem, with the U.S. 10-year Treasury yield touching 4.8% at one point last week as investors fretted about a potential flare-up in inflation.

Europe is seen as even more exposed because of its reliance on imports of oil and natural gas. Prices of those commodities have surged ever since war broke out in the Middle East in late February.

Unless there is a deal to reopen the Strait of Hormuz soon, yields could carry on rising—and that ought to be a major worry for Burnham and other European leaders.

Write to George Glover at george.glover@dowjones.com

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