Government borrowing costs globally have surged to their highest levels in decades, fueled by growing fears surrounding the US bond market. This turmoil is linked to anxiety over US President Donald Trump's handling of the US economy and concerns that the US war with Iran is contributing to inflation.
Long-term US government borrowing costs have climbed to their highest point since 2007, with the 30-year Treasury bond yield trading above 5%. The rise in US borrowing costs has subsequently pushed up yields for other nations, with G7 countries experiencing some of the sharpest increases. UK 10-year bond rates are close to their highest since 2008, and 30-year rates are near 1998 levels. Germany's rates are at 2011 levels, France's at a 16-year peak, and Japanese borrowing costs have reached their highest since 1996.
The breakdown of negotiations in the US-Israel war on Iran is cited as a primary trigger for investor unease. Additionally, the US national debt reaching $40tn for the first time, having doubled over the past decade, is stoking fears about the sustainability of Donald Trump’s tax and spending plans. The stop-start fighting in the Middle East has also increased oil prices, raising concerns about inflation and its impact on global economic growth.
Higher yields are expected to increase costs for consumers and businesses on mortgages, loans, and corporate bonds, potentially impacting their spending capacity and broader economic activity. Governments worldwide, already burdened by debt, face increased interest costs, which could complicate budget plans in countries including the UK and France.