IMF sounds alarm on borrowing costs surge as bond rout deepens
The global rise in borrowing costs is a “particular concern,” the International Monetary Fund has said, as UK bond yields reach a level last seen in the financial crisis. The yield on the 10-year UK gilt climbed four basis points on Wednesday morning to near 5.27 per cent, which followed the previous day’s rally that [...]
The International Monetary Fund (IMF) has expressed significant concern over the surge in global borrowing costs, as bond yields hit levels not seen since the financial crisis. The UK's 10-year gilt yield reached near 5.27% on Wednesday, following a previous day's rally where yields surged up to 15 basis points. Longer-term gilt yields also increased by five basis points, nearing highs observed on Tuesday.
Similar trends are occurring worldwide, with India's 10-year bond yield surpassing seven percent and Australia's yield reaching a 15-year high at over 5.2 percent.
IMF Managing Director Kristalina Georgieva sounded the alarm on these developments at the G20 meeting with top finance ministers and central bank governors in the US. She stated that while the sovereign debt landscape for emerging and low-income countries has improved in recent years due to domestic policy efforts and international cooperation, progress has been uneven.
Georgieva emphasized that persistent risks and uncertainties in the global economy, including the significant increase in yields in advanced economies, necessitate policy discipline and underscore the importance of building buffers.
The bond sell-off has been driven by soaring energy prices following disruptions in oil and gas supply due to the Iran war. Brent crude, an international benchmark for oil prices, jumped above $95 per barrel on Wednesday, its highest level in nearly six weeks. In the UK, this sell-off has intensified pressure on Chancellor John Healey, who is scheduled to present his first Budget at the end of October.
Economists predict that Healey will face a budget deficit of £12 billion, knocked off the £23.6 billion headroom left by his predecessor Rachel Reeves. Chris Beauchamp, chief market analyst at IG, noted that the UK's situation is particularly acute, with "Andy Burnham’s grand promises about reforming the economy meeting the cold reality of high debt levels and rocketing borrowing costs."
Beauchamp added that UK taxpayers may have to pay more for Burnham's ambitious plans, while also bracing for a Bank of England interest rate hike, becoming more likely with each dollar increase in oil prices.
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