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The world appears to be entering a higher-rate era. Here’s who will pay the price

The bond sell-off is owed to a mix of high government debt issuance, an oil-price shock that has reignited inflation concerns, and expectations of higher rates.

The global bond rout is raising borrowing costs across the economy and forcing governments, companies and consumers to confront the possibility that expensive debt is here to stay.

Global bond yields have been climbing to multiyear highs, with Germany’s 10-year yield

The latest leg of the sell-off is a reflection of a mix of high government debt issuance, an oil-price shock that has reignited inflation concerns and expectations that central banks may keep monetary policy tighter for longer.

The move may mark more than another bout of bond-market volatility, with consequences stretching across economies and financial markets.

“This is the continuation of a medium-term trend that’ll keep going for many years,” said Robin Brooks, senior fellow at the Brookings Institution.

Natalia Lojevsky, managing director at CIFC Asset Management, also sees scope for yields to rise further, with heavy debt issuance now colliding with renewed inflation risks.

Governments: growing interest bill

Governments are among those highly exposed to the rise in yields, said analysts whom CNBC spoke to. Sovereign debt loads are already elevated across much of the world, and refinancing maturing debt at higher rates will progressively increase interest costs and strain public finances.

“The most vulnerable sovereigns are those combining large fiscal deficits, elevated debt burdens and reliance on external capital. France stands out among developed markets,” said Masahiko Loo, senior fixed income strategist at State Street Investment Management, citing the country’s fiscal slippage, limited political appetite for fiscal consolidation and electoral uncertainty.

Global bonds are under pressure

Across emerging markets, countries running twin deficits remain particularly exposed because higher global yields raise both borrowing costs and funding risks, he added.

“When debt, deficits and external financing needs collide, markets tend to become far less forgiving,” he added.

Authorities can attempt to contain yields through bond buybacks or changes to the amount and maturity of debt they issue. But such measures do not resolve the underlying imbalance between heavy borrowing and investor demand.

“The higher yields move, the more uncomfortable the long-term fiscal trajectory looks for many countries,” Deutsche Bank wrote in a recent note.

Japan illustrates the pressure particularly clearly. Government debt makes up more than 200% of its gross domestic product, leaving its finances highly sensitive to rising borrowing costs. National debt service is estimated to account for more than 25% of government expenses for fiscal year 2026.

Companies: hitting growth plans

Businesses will have to pay more to refinance debt or raise funds for expansion. Companies with large borrowing needs, weaker balance sheets or floating-rate debt are especially vulnerable.

Small-cap companies tend to hold more floating-rate debt than their larger peers, meaning their interest expenses can rise relatively quickly as rates climb, according to Thomas Browne, portfolio manager at Keeley Teton Advisors.

“The pressure points are the most leveraged ones that are accustomed to free money,” said Loo. In a similar vein, he highlighted that commercial real estate, private-equity-backed companies, direct-lending portfolios and lower-quality software businesses are among the most exposed. Many were financed on assumptions that capital would remain plentiful and inexpensive.

The artificial-intelligence investment boom is adding another wrinkle. Technology companies are issuing enormous amounts of debt to build data centers and related infrastructure, putting them in competition with governments and other corporate borrowers for investors’ capital.

“You have an enormous amount of debt being issued to fund different AI projects, and the issuers of that debt are fairly price insensitive,” said Larry Holzenthaler, senior portfolio manager at Catalyst Funds.

Higher benchmark yields can lift financing costs even for healthy companies, potentially making some factories, data centers, acquisitions and other investments less economically viable.

Consumers: K-shaped squeeze

Higher long-term yields flow through to mortgages, car loans and other forms of household credit. The burden will not be shared evenly.

“That long end of the curve is really important because it drives the cost of capital, not just for companies, but people with mortgages, the housing market,” said Holzenthaler.

Lower-income consumers, who spend a larger proportion of their earnings servicing debt and buying essentials, are likely to feel the squeeze first, said market watchers. Wealthier households may benefit from higher returns on savings and are generally better able to absorb larger monthly payments.

“Have this K-shaped dynamic with respect to consumers. The folks that are going to feel that the most in terms of what’s the percentage of my paycheck that gets spent on a car payment, a mortgage payment, a student loan – lower-income folks are going to feel that a lot more versus a wealthy person,” Holzenthaler added.

The effect may emerge gradually as fixed-rate loans mature and households refinance. But if pressure on lower-income consumers causes spending to weaken, the impact could spread across the economy.

Stock investors: pressured by yields

Equity markets have shown resilience, supported by strong earnings and optimism over AI-led productivity gains. But rising bond yields make safer government debt more attractive relative to stocks, while also reducing the present value investors assign to companies’ future earnings.

“At some point, higher yields are a painful experience for equities,” Lojevsky said.

“The equity market has been remarkable in the way that it’s been able to look through or look past these rising yields … But eventually, it starts to catch up, and I think that’s what’s happening.”

Still, higher yields bring one notable winner: new bond buyers. Larger coupon payments now provide a cushion against further price declines, unlike the low-yield environment earlier this decade.

Deutsche Bank estimates that 10-year Treasury yields could climb to roughly 5.5% over the next year, before the capital loss from falling bond prices outweighs the coupon income investors receive. Over a two-year horizon, yields would need to rise to around 6.4% for total returns to turn negative.

The calculation refers to nominal total returns, combining coupon income and changes in the bond’s market price.

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Passengers and crew foil co-pilot’s apparent attempt to crash FlyDubai flight to Israel

One of the pilots on a FlyDubai flight headed for Israel stabbed the second pilot, according to Israeli Prime Minister Benjamin Netanyahu.

On-duty flight crew and passengers managed to foil a pilot’s apparent attempt to crash a FlyDubai flight, after reports emerged of a fight in the cockpit.

The incident on flight FZ1073 from Dubai to Tel Aviv happened when a co-pilot stabbed a pilot, according to Israeli Prime Minister Benjamin Netanyahu, who praised the victim’s quick thinking.

“Despite being stabbed and seriously injured, he fought back, resisted, opened the cockpit door, and enabled passengers and crew to overpower the attacker — preventing a catastrophic mid-air disaster. He saved the lives of 174 people, including Israeli citizens and other nationals,” Netanyahu wrote in a post on X.

FZ1073 was diverted to the Tabuk airport in Saudi Arabia, the airline said, after being successfully secured and diverted by flight crew.

FlyDubai in a statement said that an “altercation” occurred on the flight deck of the plane, but did not mention a stabbing.

However, the airline added that the underlying reasons and motives for the clash is currently unknown, urging all parties to refrain from speculation.

The injured pilot was identified by Netanyahu as Indian national Smit Machchhar. No details have been released on the identity of the attacker, except that he was being interrogated by Saudi authorities.

The Indian embassy in Riyadh said on X that Machchhar is in a hospital in Tabuk, and is reported to be in stable condition.

The Israeli Prime Minister also identified the passenger who broke into the cockpit as Yaniv Hayun, calling him a “hero” and adding he deserved “a global medal of honor.”

Flight data from tracking site FlightRadar24 showed that the plane had experienced extreme altitude fluctuations before broadcasting a “general emergency” squawk code.

FZ1073 had dropped from over 14,000 feet in just 29 seconds, and FlightRadar24 also added that vertical speeds ranging from approximately -30,000 to +10,000 feet per minute were observed from the transponder data.

For context, vertical speeds during normal operations rarely exceed plus or minus 4,000 feet per minute, it added.

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South Korean President Lee Reins In Alaska LNG Project Participation Following Trump’s Endorsement

South Korea’s proposed $200 billion U.S. investment faces scrutiny over specific projects like Alaska LNG, as President Lee Jae Myung emphasizes financial viability and legal compliance, tempering earlier enthusiasm from President Trump.

South Korea’s proposed $200 billion investment in the U.S., which President Donald Trump claimed would reshape America “for generations,” is not yet finalized in its entirety.

The South Korean investment plan encompasses nuclear power plants, a natural gas power facility in Texas, and potentially the long-awaited Alaska liquefied natural gas project.

Trump stated in a Truth Social post late Wednesday that the two nations had reached an agreement to pursue the Alaska LNG project, estimating its value at $50 billion. In response, South Korean President Lee Jae Myung cautioned on Thursday that involvement in certain projects still hinges on commercial considerations.

Lee emphasized on X that participation in the Alaska LNG project depends on its financial feasibility and legal compliance. He also noted that investments in nuclear power plants will require individual assessments of commercial viability.

The U.S.-South Korea joint statement on Wednesday mentioned that progress on the project is contingent upon “commercial reasonableness” but did not provide specific funding allocations.

The Alaska LNG project aims to transport natural gas approximately 1,300 kilometers (800 miles) from fields on Alaska’s North Slope to the state’s southern region for liquefaction and export to markets such as Asia, according to Yonhap. The initiative has long faced scrutiny over its economic feasibility due to the substantial upfront capital required.

Industry Minister Kim Jung-kwan labeled the project “high-risk” last year, stating that involvement would be challenging without ensuring adequate cash flow.

Overall, the investment package includes $22.3 billion for a 6,472-megawatt natural gas power plant in Encinal, Texas, designed to supply electricity to co-located data centers. The project will be spearheaded by developer Related Cos. and U.S. energy company NextEra Energy.

Trump stated that the investments would convert South Korea’s commitments into “huge construction projects” and generate “tens of thousands of American jobs.”

“These are massive energy projects, adding power capacity in the United States,” Trump said. “This is new construction, new manufacturing, and great jobs for American workers.”

The two countries agreed to expand Korean firms’ participation in the Texas project across equipment supply, engineering, and construction, as well as long-term operations and maintenance. The U.S. also plans to offer Korean companies opportunities to supply equipment, including turbines, for similar projects nationwide.

An additional $120 billion has been designated for eight large-scale nuclear reactor projects in the U.S. Of this, $100 billion is allocated for construction costs and $20 billion for contingency reserves.

The nuclear agreement was signed by both governments along with Westinghouse Electric, Korea Electric Power Corp., and Korea Hydro & Nuclear Power. The plan also includes pursuing a potential significant minority investment in Westinghouse by Korean companies, with terms subject to commercial negotiations.

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SEC Advances Crypto Custody Rules as Major Legislation Languishes in Congress

The SEC has proposed new crypto custody rules for investment advisers and funds while comprehensive legislation remains stalled in Congress, creating a regulatory pathway for digital asset holdings.

The U.S. Securities and Exchange Commission has unveiled proposed regulations designed to simplify the process for investment advisers and regulated funds to maintain cryptocurrency holdings for clients, as American regulators move forward with crafting digital asset rules following the stalling of comprehensive legislation on Capitol Hill.

The proposal, revealed Thursday, would create a specialized framework governing how registered investment advisers, investment companies, and business development companies maintain custody of crypto assets.

The modifications aim to update decades-old custody requirements and eliminate regulatory obstacles that the SEC says have restricted advisers’ capacity to provide crypto-related investment options.

Under the proposed regulations, crypto assets could be held in self-custody under “certain circumstances,” while state trust companies could also function as custodians for crypto assets belonging to clients and regulated funds.

The changes could also grant regulated funds expanded authority to offer investors crypto-related investment strategies, according to the SEC.

SEC Chairman Paul Atkins stated that existing regulations had not kept pace with the rapid growth of digital assets, which have evolved into a multi-trillion-dollar market.

“Today’s proposal would provide a clear regulatory framework for the custody of crypto assets, giving investment advisers and funds a compliant pathway where none existed before,” Atkins said.

The proposal arrives as U.S. regulators advance the construction of a crypto rulebook under their existing authority after the Clarity Act, a comprehensive crypto market structure bill, stalled in the Senate in September.

This represents another step in the SEC’s broader initiative to reshape the U.S. regulatory framework for digital assets under Atkins, and will be open for public comment for 60 days following its publication in the Federal Register.

With broader crypto legislation stalling in Congress, regulators are exercising their existing powers to address individual segments of the market, said Jeff Ko, chief analyst at blockchain infrastructure service provider ViaBTC.

“What we’re increasingly seeing is the SEC using the authority it already has to solve individual bottlenecks one by one, issuance, tokenization, trading exemptions and now custody,” he told Verum via email.

The changes could also intensify competition among crypto custodians, potentially reducing the cost and complexity of investing in digital assets, he said, adding that institutional custody has historically been concentrated among a relatively small number of providers.

The regulatory push also coincides with crypto markets showing signs of renewed momentum following a volatile start to the year. Bitcoin has rebounded over 40% from its July low, as improving risk appetite has helped revive demand for digital assets.

The recovery follows a prolonged downturn from late 2025 into the first half of 2026.

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