What do soaring global bond yields mean for Vietnam?

For Vietnam, this does not make its double-digit growth target impossible, but it does require a different approach to investment, credit and the efficiency of capital use.

A September of records

In early September 2026, the bond market — a capital market that usually attracts little public attention because it is dominated by professional investors and large financial institutions — suddenly became a media focus.

In the United States, the 10-year Treasury yield approached 4.9 percent, while the 30-year yield rose above 5 percent.

In the United Kingdom, the 10-year government bond yield rose to around 5.3 percent on September 10, its highest level since 2007. Earlier, a 30-year UK government bond sale carried a yield of nearly 5.8 percent, the highest since 1998.

In Japan, the 10-year government bond yield reached 3 percent for the first time in three decades, while expectations for longer-term Japanese bond yields have continued to rise.

These figures may seem unimportant. But they would probably affect mortgage rates in almost every economy in the world, businesses' borrowing costs and the interest rates governments themselves have to pay on public debt.

Basically, government bond yields are among the most important benchmarks in an economy, alongside the short-term policy rates set by central banks, which attract more public attention.

They provide the foundation for pricing almost every other form of capital, from mortgage rates and corporate bonds to the returns investors demand when putting money into a new project.

While most markets focus on central bank interest-rate decisions, which primarily affect short-term rates, government bond yields become much more important when large amounts of medium- and long-term capital are needed.

In the past, people paid less attention because long-term investment spending across the global economy was relatively stable.

But now, for a number of reasons, pressure on global long-term capital has risen sharply and suddenly. And when bond yields rise, put simply, the price of money is rising as well.

Why are global bond yields rising?

It is not just about war and oil prices. The most visible cause of the recent rise in yields is inflation.

Renewed tensions in the Middle East pushed Brent crude back above US$90 per barrel early this month, and now to $100, reviving concerns that an energy shock could spread from fuel prices to transportation, production and ultimately consumer prices.

In the U.S. and Europe, markets have therefore sharply increased expectations that central banks may have to continue raising short-term interest rates rather than move toward easing soon, while also pushing up expectations for medium- and long-term inflation.

In the U.S., concerns about the labor market have eased as the unemployment rate stopped rising and August 2026 employment data came in better than expected. That has forced investors to reassess the possibility that the U.S. Federal Reserve (Fed) could keep interest rates higher for longer, or even raise them further.

A Reuters poll published on September 9 showed that most economists still expected the Fed to keep rates unchanged for the rest of the year, but the number expecting at least one rate hike was rising significantly.

Financial markets had even begun pricing in the possibility of two rate hikes between now and March 2027.

More importantly, the problem facing the Fed is not just oil prices. Energy prices can rise and then fall. What is harder to deal with is persistent core inflation, indicating that demand in the economy has not truly cooled.

AI paradox: stronger growth, harder-to-cut interest rates

Technology companies are pouring hundreds of billions of U.S. dollars into data centers, chips, power generation and infrastructure serving AI.

This investment supports growth, lifts stock prices and creates additional demand for capital.

Normally, we think of stronger growth as good news, and over the long term that is indeed the case. But for the bond market, an economy with more profitable investment opportunities also means that the equilibrium interest rate, or "natural rate of interest," may be higher.

If a company expects to earn substantial profits from a new data center, semiconductor plant or power network, it is willing to pay a higher cost of capital to carry out the project.

When thousands of companies want to borrow at the same time, while governments are also borrowing heavily, the price of capital has to rise to balance supply and demand in the bond market.

That is why some economists and bond managers argue that current yields are not necessarily just the result of a temporary panic.

Morningstar cited Kenneth Orchard of T. Rowe Price as saying that the world may be entering a more "structural" period of higher yields, driven by large budget deficits, geopolitics, inflation and changes in the global balance between saving and investment.

If the AI revolution genuinely boosts productivity and investment, it could help the economy grow faster while also making it harder for interest rates to return to the extremely low levels of the 2010s.

An elephant in the room: public debt

The more worrying issue is global debt, with public debt becoming the "elephant in the room" while the private-debt iceberg is being overlooked.

U.S. federal debt has exceeded $40 trillion. The budget deficit remains large, meaning Washington must continually issue more bonds to finance spending and refinance maturing debt.

Investors are not necessarily refusing to lend to the U.S., but they are demanding higher yields to continue doing so.

This is not only a U.S. problem. Developed governments are under pressure from aging populations, defense spending, the energy transition and fiscal legacies from the pandemic.

According to the Financial Times, OECD (Organisation for Economic Co-operation and Development) countries alone paid around $2 trillion in interest on their debt in 2025, and that figure is almost certain to rise significantly.

As old debt issued at low interest rates matures and is replaced with new bonds carrying higher rates, the interest burden could increase further. Governments ultimately have to pay it, and eventually the burden falls on the public through higher taxes.

More debt leads investors to demand higher yields. Higher yields increase governments' debt-servicing costs. Higher interest costs, in turn, widen deficits, forcing governments to borrow more.

Such a spiral does not necessarily lead to a crisis, but it places clearer limits on the ability to use fiscal policy.

The problem is that if markets push yields higher, the cost of capital for the entire private sector also rises. Government bond yields transmit their effects to private-sector funding costs.

So what if governments tighten their belts and cut budget spending, as Germany has proposed?

It is difficult to say that this would necessarily be better, because it could constrain GDP growth, which could in turn increase the public-debt-to-GDP ratio or the ratio of interest payments to government revenue over the longer term.

In other words, cutting spending does not automatically make growth better. But neither does increasing spending necessarily produce sustainable GDP growth.

Vietnam not outside the trend

Vietnam has set a target of at least 10 percent GDP growth in 2026, with average growth of at least 10 percent targeted for 2026-30. To achieve that goal, total social investment is expected to be around 40 percent of GDP.

This represents a very large ambition for mobilizing capital. The government is placing infrastructure, railways, expressways, airports, energy and digital infrastructure at the center of its growth strategy. The 2026 public investment plan alone exceeds VND1 quadrillion ($38.6 billion).

In a world of cheap capital, a growth strategy relying heavily on investment is easier to execute. But when global yields rise, the calculation becomes more difficult.

First, international capital becomes more expensive. Vietnamese companies raising funds in U.S. dollars or international investors pricing projects in Vietnam must compare returns with the increasingly attractive yields available on U.S. treasuries.

When an asset considered virtually risk-free, such as a U.S. Treasury, can yield 4-5 percent, investors will demand significantly higher returns from a project in an emerging market such as Vietnam.

Once expectations of Vietnam dong depreciation or the risk premium for hedging exchange-rate risk are factored in, the cost becomes far from cheap.

Second, high U.S. yields put pressure on the exchange rate and capital flows. If Vietnam seeks to cut interest rates sharply to stimulate credit while the U.S. maintains high rates, the yield differential could put additional pressure on the Vietnamese dong.

The State Bank of Vietnam therefore has to balance two conflicting objectives: providing sufficiently cheap capital for growth while maintaining monetary stability.

But Vietnam also has a significant advantage: its fiscal space is not as constrained as that of many developed economies. Policy guidance continues to keep public debt below 60 percent of GDP.

However, having room to borrow does not mean that borrowing should be pursued at any cost. In an era of expensive capital, the quality of growth matters more than the quantity of capital. This may be the most important lesson Vietnam can draw from the global bond sell-off.

And the warning being sent by global markets should not be ignored: the past two decades have produced a generation of governments, businesses and investors accustomed to the assumption that "money will always be cheap." 

That assumption is becoming increasingly difficult to sustain.

For Vietnam, this is not necessarily a reason to lower its ambitions for double-digit growth. But it is a reason to change the question.

Instead of asking only, "How much capital is needed to achieve 10-percent growth?", the more important question should be: "How much value must each unit of capital create to achieve 10-percent growth without undermining macroeconomic stability?"

If Vietnam can answer the second question well, global bond yields at 5 percent will not prevent the country from growing rapidly, but they will make that growth path more disciplined.

* This article was originally written in Vietnamese by Ho Quoc Tuan, lecturer at the University of Bristol in the UK, and rewritten in English by Tuoi Tre News.