Global government bond yields have surged since February 2026 following the outbreak of war between the US and Iran, raising debt servicing costs for developed countries by more than $16 billion, according to multiple reports [1, 2, 3, 4, 5]. The G7 nations have collectively seen an additional $16 billion in debt financing costs since the conflict began, with projections estimating these costs could climb another $34 billion by the end of the first quarter of 2027 if yields continue to rise [1, 2, 3, 4, 5].

The United States is bearing the largest share of this increase. Current estimates put the US's added financing cost at about $10.6 billion, which could nearly double to $21.7 billion by early 2027 if the high-yield trend persists [1, 2, 3, 4, 5]. The escalating costs stem largely from the closure of the Strait of Hormuz, which has triggered an energy supply crisis and pushed up inflation expectations in energy-importing G7 members such as the UK, Italy, Germany, and Japan [1, 2, 3, 4, 5].

Mohit Kumar, Jefferies Chief European Economist, said rising interest rates represent "one of the biggest risks to equity and credit markets," warning that a US 10-year Treasury yield above 5% could spark negative stock market reactions [1]. Beyond geopolitical tensions, several other factors support higher bond yields. Adam Posen, Director of the Peterson Institute, cited inflation risks, political instability in major economies like the US, France, Japan, and intermittent issues in the UK and Germany. Increased defense spending, growing demographic demands, infrastructure investments, rising green energy expenditures outside the US, and heavy corporate borrowing—especially by AI hyperscalers—also push real rates higher [2].

Higher borrowing costs are already cooling US economic activity. James Knightley, ING's Global Chief Economist, noted that the surge in funding costs has begun to slow the US housing market, with mortgage interest rates possibly exceeding 7%, applying a brake on economic momentum [3, 4, 5].

The war's outbreak in February marked a sharp rise in global government bond yields, continuing through today. On August 30, reports reconfirmed the G7's increased debt financing costs at $16 billion with expectations of further increases into 2027 [1, 2, 3, 4, 5].

If yields remain elevated, the G7 faces the prospect of adding up to $34 billion more to debt servicing expenses by the end of the first quarter of 2027, intensifying budgetary pressures across these major economies [3, 4, 5].