Global Government Borrowing Costs at Highest Levels in Decades
Arabic - The cost of long-term government borrowing has surged globally to its highest levels in decades, driven by rising yields on sovereign bonds in the United States, Europe, and Japan this week, amid investor concerns over inflation, fiscal deficits, and weakening demand for long-term debt.
Bloomberg reported that the yield on the 30-year U.S. Treasury bond rose to its highest level since 2007. Interest payments on public debt remain a primary driver of the widening U.S. budget deficit, reaching $1.17 trillion in the current fiscal year so far, a 15% increase.
France recorded its highest borrowing costs since 2008, while Germany’s equivalent traded at levels last seen in 2011. In the UK, yields on similar bonds approached 6%, and short-dated Japanese bonds touched levels close to their historical peaks.
According to the report, these movements come despite local factors in each market, but the forces pushing yields higher appear to be global in nature. Investors fear that ongoing geopolitical disruptions could lead to increased supply shocks and inflationary pressures, while also worrying that governments may fail to curb spending, thereby straining public finances.
Bloomberg quoted Justin Onwukosi from St. James Place, stating that the market is sending a message anticipating higher inflation or, at the very least, greater uncertainty in the future, leading investors to demand higher yields on longer-term bonds.
The report added that borrowing costs are rising across global government bond curves, but long-term debt remains the most sensitive to fiscal issues, as its yields are often the highest. Changes in market structure and demographic factors have also contributed to declining demand from buyers who were traditionally considered more stable.
Bloomberg noted that British authorities have halted most scheduled long-term issuances in an attempt to adapt to an environment that no longer allows financing costs to remain at very low levels for decades as in the past.
Skyler Montgomery Cunningham, macro strategy analyst at Bloomberg, believes several factors support structurally high yields throughout this decade, noting that a key difference lies in how growing deficits are financed. She stated that current fiscal expansion is pushing governments to borrow more at a time when interest rates are already high, increasing pressure on the bond market.
Chris Ego, Chief Investment Officer at AXA IM Core, part of BNP Paribas Asset Management, said it is difficult to pinpoint the level at which the total return outlook for long-term fixed-income instruments becomes more attractive, adding that what might change the picture is a "sudden weakness in economic data or some form of external shock."
In the United States, the 30-year bond yield rose by approximately 40 basis points since the end of June to reach 5.33%, the highest level since mid-2007.
The report stated that this creates political and economic pressure as high government financing costs spill over into consumer loans and corporate borrowing. Meanwhile, the average yield on a standard portfolio of investment-grade government bonds reached around 4.5%, the highest level in Bloomberg data since 2015.
