The law firm Stevanović had the opportunity to participate in the successful 2022 bond issuance by the Republic of Srpska, with a nominal value of €200 million. This provided us with direct insight into the prevailing market conditions at the time, as well as detailed access to major banking systems in London.

Global government bond markets are under unprecedented strain. Yields on long-term government debt are rising rapidly, while investor demand is weakening—putting many governments in a precarious position. As record-breaking bond issuances are planned to finance large deficits, investors are increasingly resistant—for the first time in nearly a generation, governments are finding it harder to sell long-term debt. This shift in the global paradigm raises important questions: what do rising yields and declining demand mean for fiscal sustainability, and how does this impact our region?

Rising Yields and Falling Bond Demand

After a decade of cheap borrowing, the era of “low-cost, long-term financing is over.” Governments worldwide are now competing in an overcrowded “bond seller’s room,” facing a global imbalance between supply and demand. Yields on 30-year government bonds have hit multi-decade highs in many major economies, underscoring the scale of pressure:

• United States: The 30-year U.S. Treasury yield has surpassed 5%, approaching levels seen in 2023 (during the post‑financial‑crisis period).

• United Kingdom: Long-term borrowing costs hit their highest point since 1998, reflecting investor concerns over rising debt and constrained fiscal flexibility.

• Japan: The yield on 30-year Japanese Government Bonds climbed to around 3%, a record high after years of ultra-low interest rates.

Weaker demand has been evident in recent auctions of long-term bonds. For instance, Japan’s latest 20-year bond auction showed steep price declines and yield spikes, immediately increasing Japan’s debt financing costs. The next day, a U.S. 20-year Treasury auction also drew lukewarm investor interest. Such outcomes—combined with rising yields—signal a broader issue: investor appetite for government debt is drying up just as many nations plan sharp increases in borrowing amid uncertain global economic conditions.

What’s Causing the Shift?

• Increased Supply: Record-deficit financing and central banks beginning to sell holdings from quantitative easing have flooded the market with supply.

• Reduced Demand: Traditional long-term buyers—pension funds and insurers—are pulling back from longer maturities.

This mismatch reflects a classic global supply–demand problem. As Amanda Stitt of T. Rowe Price explains, “a classic issue of supply–demand mismatch, but on a global scale,” with governments now grappling with built-up debts and choosey investors.

Investor Pushback & Market Warnings

Rising yields and weakening demand have resurrected the “bond vigilantes”—investors who pressure governments into fiscal discipline. First coined in the 1980s, the term is more relevant now than ever. Economist Ed Yardeni warns that global bond vigilantes might demand more responsible public finances.

High-profile figures on Wall Street have sounded alarms:

• Jamie Dimon (JPMorgan Chase) cautioned that the U.S. debt may “splinter the Treasury market,” implying investor resistance to current debt levels.

• Larry Fink (BlackRock) said sustained 2% growth would see deficits “flood the country.”

• Ken Griffin (Citadel) called a 6–7% GDP deficit at full employment “purely fiscally irresponsible.”

• Elon Musk went as far as labeling a proposed spending package “repulsive filth” leading America toward bankruptcy.

Europe is also showing signs of market scrutiny:

• Michel Barnier, former French Prime Minister, described France’s public debt as a “Damocles’ sword.” France is set to pay around €62 billion in debt interest this year—about the combined annual spending on defense and education.

• In both Italy and the UK, investors are closely watching fiscal policies. The UK’s 30-year yields have reached levels last seen in 1998 due to debt concerns.

Market signals are clear: fiscal irresponsibility will be punished—deficit control is no longer optional.

Fiscal Challenges for Governments

Higher yields mean more expensive debt servicing. In OECD countries, interest costs are at their highest since 2007. Governments are spending more on debt interest than on vital ministries such as defense or education. This erodes fiscal space—more money for interest means less for public services and investment.

Investors are also demanding higher “term premiums” to hedge against inflation risk over the long term, which is pushing yields even higher. Central banks may be cutting short-term rates, but they are losing influence over long-term borrowing costs, which now reflect market views on inflation and debt saturation.

Governments face a dilemma: how to refinance existing debt and fund new needs in a market that demands much higher yields?

• UK Debt Office has reduced its plan to sell long-term debt this year, citing weakening demand to protect taxpayers.

• Japan is considering limiting issuance of its longest bonds.

• U.S. has floated the idea of buying back previously issued bonds to ease market pressure.

However, these are short-term fixes. Switching to shorter-term debt lowers interest rates now but creates refinancing risk—an issue for developing economies. The real solution is fiscal discipline. Without growth, governments must curb unchecked spending, or face a debt spiral. As Craig Inches of Royal London Asset Management asks: do governments have the political will to do it?

If they don’t, fiscal dominance could ensue—central banks prioritizing debt sustainability over growth or inflation, leading to a self-reinforcing cycle of rising debt and yields. Legendary investor Ray Dalio calls this the “debt‑death spiral.” While global reserve currencies like the dollar may provide a buffer, smaller, highly-indebted countries have far less urgency.

Implications for Our Region: Stevanović Law Firm’s Perspective

These global trends carry real consequences for our region. Republika Srpska and neighboring economies started to feel the impact of higher post-pandemic borrowing costs early on. Back then, investors still supported issuances—provided adequate premiums and structure. But two years later, the environment is far more complex. Investor expectations are stricter, and capital costs are significantly higher.

What this means for Republika Srpska and the wider region:

• Higher interest rates on future debt issuances.

• Greater yields required from smaller, lower‑rated issuers to attract investors.

• Reduced liquidity for local bonds as global demand softens.

International experience offers guidance: investors are drawn to fiscal discipline and transparency. Any announcement of increased spending or rising debt will be scrutinized. Republika Srpska and Western Balkan countries must maintain robust public finances to retain investor confidence. The UK’s 2022 mini-budget crisis demonstrated how quickly markets can react to fiscal missteps.

Proactive strategies can improve odds: diversify your investor base, use a mix of maturity structures (with caution about refinancing risk), and engage support from international financial institutions. Careful legal structuring, regulatory compliance, and transparent investor communication are more vital than ever.

Our Services – Invitation to Clients

As legal advisors with proven expertise in international financial markets, Stevanović Law Firm is closely monitoring these global trends and ready to assist clients in navigating these challenges. Our successful involvement in the 2022 Rs bond issuance shows that, with expert support and sound planning, even complex transactions can succeed amid market uncertainty.

Our services include:

• Bond issuance legal advisory: structuring, prospectus drafting, documentation, and compliance.

• Investor relations guidance: assisting with project presentation and credit profile positioning—leveraging best practices in investment banking.

• Negotiation & execution support: representing clients in discussions with intermediaries, investors, and regulators to ensure efficient, transparent outcomes.

We invite governments (entity-level or municipal) and corporates planning bond issuances to contact us for consultations. In a fast-moving capital-market environment, timely expert advice can be the key to transaction success.

Sources: Global trends and data sourced from the Financial Times analysis 'The Mounting Pressure on Bond Markets' (June 2025), with expert commentary by Stevanović Law Firm.

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"Standard Prva" LLC Bijeljina is a company registered in Bijeljina at the District Commercial Court in Bijeljina. Company’s activities are accountancy, repurchases of receivables, angel investing and other related services. Distressed debt is a part of the Group within which the company repurchases the receivables, which function and are not returned regularly.

Lawyer’s Office Stevanović is the leading lawyer’s office in the region with the seat in Bijeljina. The LO abbreviation represents Lawyer’s Office of Vesna Stevanović and Lawyer’s Office of Miloš Stevanović.

Contact for media press@advokati-stevanovic.com or via telephone 00 387 55 230 000 or 00387 55 22 4444.