‘There’s no plan’: as instability in global bond markets rises, what are the knock-on effects?
From mortgages to inflation, concerns about the public finances of major economies have wide-reaching consequences When Donald Trump was asked recently about the threat of rising interest rates on US government debt, he told baffled reporters: “The ultimate intervention is our military. And if we have to use that, we will.” Perhaps not surprisingly, his bellicose words did not soothe fractious…
The recent surge in instability within global bond markets has triggered a cascade of consequences, affecting borrowers across numerous sectors. The rising yields on government debt, particularly in the United States, have heightened concerns about the fiscal health of major economies. Donald Trump's inflammatory remarks about military intervention to combat the threat of higher interest rates on US government debt only exacerbated the situation, further alarming bond markets.
This wave of turbulence has not only affected the United States but also reverberated globally, with major economies like the United Kingdom and Japan experiencing upward pressure on borrowing costs. The increasing debt accumulated by governments due to pandemic recovery measures, escalating energy prices, and defense expenditures has made them particularly sensitive to changes in global interest rates.
Policymakers' attempts to address the situation, such as Scott Bessent's intervention in financial markets, have only fueled the perception that they are in a state of panic. The situation is further complicated by the prospect of inflation resurfacing due to the ongoing Middle Eastern conflicts, which have driven oil prices above $90 per barrel.
Central banks worldwide are closely monitoring these developments, with the European Central Bank expected to raise interest rates soon. Additionally, the rapid expansion of borrowing by AI "hyperscalers" to fund datacenter expansions and the potential for inflationary shocks caused by climate-related events present further challenges.
The rising bond yields have already led to increased public borrowing, with the United Kingdom spending £1 out of every £12 on debt interest alone. This has prompted calls for the UK government to take measures such as implementing spending cuts or tax increases to mitigate the impact of higher borrowing costs. Similarly, Australian policymakers face similar challenges, with bond yields nearing 15-year highs and the country's government debt surpassing A$1 trillion.
The timing of these milestones coincides with a politically challenging period for the Labor government, which is under pressure to address high spending levels. Falling house prices and a mood of discontent among the population add to the urgency of the situation.
Written by urgent.news from Guardian Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
