Global Bond Markets Put Governments on Notice Over Fiscal, Inflation Risks

• Long-term borrowing costs from the U.S. to Germany and Japan hit their highest in decades on Tuesday due to ballooning government debt and geopolitics, raising borrowing costs for companies and households and complicating policy. Bond markets ‌are entering an era where the inflation and interest rate outlook is more uncertain, and the upside risks are greater, as U.S. President Donald Trump’s policies, from tariffs to war, upend the global order.
• Debt levels in developed countries are reaching thresholds that look increasingly unsustainable, with the U.S. debt pile nearing $40 trillion. The Iran war is dragging on, pushing up oil prices and inflation and hitting global growth. In addition, massive borrowing by technology companies to fund a buildout of AI infrastructure is ​competing with demand for government bonds.
• In addition, massive borrowing by technology companies to fund a buildout of AI infrastructure is ​competing with demand for government bonds. Bond yields' recent surge "suggests investors are losing patience with fiscal profligacy," said Jonas Goltermann, chief markets economist at Capital Economics.
• Thirty-year bond yields in the United States, the ⁠world's deepest and most systemically crucial government bond market, hit their highest since 2007earlier on Tuesday as oil prices rose back above $90, fanning inflation worries as US.-Iran peace hopes faded. In Japan, inflation angst and expectations that the central bank could hike interest rates as early as Septemberpushed 10-year borrowing costs to a three-decade high.
• In Europe, Germany's 10-year Bund yield touched its highest since 2011, French yields were at their highest since 2008, and Britain's 30-year borrowing costs neared peaks hit in May that marked the ​highest levels since 1998. When a bond's yield rises, its price falls.
• The selloff ​in government bond markets matters because the repercussions ripple through economies. Sovereign debt sets the benchmark for borrowing costs for companies and other loans, including household mortgages

(Source: Reuters)