The long -term bonds face new pressure salesincreasing borrowing costs around the world and creating a headache for investors and policy makers.
The yields of the 30 -year US government bonds were about 5% at the beginning of September, a level that was last achieved in July. Japan’s 20 -year bond yields have risen to the highest level since 1999, while yields on the UK’s 30 -year bonds have risen to levels last recorded in 1998. French and Australian government bonds are among other things.
The rise in yields marks that investors require additional compensation for state debt in view of increasing fiscal deficits and persistent inflation. The increasing concern is that politicians do not have the ambition, or even the ability, to limit their countries’ debt, while central banks may find it difficult to deal with the combination of continuing pressure on prices and declining economic growth.
What about the long -term bonds?
Investors usually buy and sell bonds based on the relative attractiveness of their fixed payments. The more time it is left until the expiration of a bond, the more things can go wrong in the meantime. Long -term bonds between 10 and 100 years tend to offer higher interest rates than short -term government bonds in less than a year in order to compensate buyers for additional risk.
When a country’s financial prospects worsen, bond yields usually decline. This is because a weaker economy encourages central banks to shift their attention from fighting inflation to stimulating economic activity. This means a trend towards reducing reference rates, enhancing the relative attractiveness of the bonds in relation to cash in the bank.
However, lately, Long -term bond yields have increased. In the US, this is partly due to the fact that the economy has slowedbut it has not collapsed, and inflation remains stronger than forecasts.
Why are there any concerns about debt and deficits?
Governments around the world have burdened their budget with cheap debt after the 2008 global financial crisis and then borrowed even more to tackle traffic restriction measures due to COVID-19 and the consequent recesses. World debt reached the record of 324 trillion. dollars in the first quarter of 2025with the leaders of China, France and Germany, according to the Institute of International Funding.
Increasing inflation from the pandemic has made it more difficult to maintain this level of lending. Big central banks increased interest rates and finished bond market programsknown as quantitative relaxation, which were designed to reduce borrowing costs. Some central banks They are now actively selling debt that accumulated Through quantitative relaxation back to the market, adding further upward pressure to yields.
The concern is that if bond yields remain high and governments fail to put their budget in order, the cost of serving part of this debt will continue to grow.
In the US, the cost of the root law on President Donald Trump’s tax and costs is an additional reason for concern for bond investors. One Big Beautiful Bill Act law could add 3.4 trillion. Dollars in the US deficit over the next decade – without calculating dynamic effects such as the possible effect on growth – according to the Congressional Budget Office, which provides impartial analysis of US budget policy.
Moody’s Ratings has removed from the US their latest top credit rating in May, citing fears that the exacerbated public debt and deficit will harm the country’s position as a privileged destination for world capital.
What has led to recent bond sale?
In addition to the ongoing debt pressures, the policy has been an important factor.
After criticizing the US Federal Bank (Fed) president, Jerome Powell, for not raising interest rates faster, Trump’s move to remove Fed Governor Lisa Cook has stepped up concerns about the Central Bank’s independence. The fear is that Trump will be able to replace Cook and others with officials who are more willing to reduce borrowing costs, regardless of the risk of inflation.
The abundance of corporate bond sales does not help, as this can sometimes distract demand from government bonds. Both companies and government borrowers around the world sold at least $ 90 billion in investment bonds in early Septemberas sections of world credit markets approached or broke a record in one of the most busy weeks of the year.
September is also a traditionally bad month for long -term bonds, as investors return from their summer vacations and adjust their portfolios. According to data collected by Bloomberg, State bonds worldwide over 10 years recorded average loss of 2% in September. The combination of risks pushes the so -called “prime duration” – what investors require for the uncertainty of bond holding for a longer period – at higher levels.
Why is the sharp increase in yields of long -term counterparts?
Investors want the bond market to be secure and “boring”, as many of these assets hold them to ensure a stable flow of income that will balance the volatility of higher risk and higher -efficiency investment, such as technology shares.
When long -term returns are increasing, they affect mortgages, car market loans, credit card rates and other forms of debt, putting pressure on households and businesses, and consequently in broader economies.
If the yields of long -term bonds remain high for a longer period, this will gradually affect the borrowing costs for governments. This, coupled with the deterioration of economies, could lead to a “vicious circle”, in which debt levels will increase even further, regardless of the actions of governments on tax and expenditure.
Sometimes, market uprisings can even lead to the fall of governments – as happened in the United Kingdom in 2022, when the mini budget of then Prime Minister Liz Truss, who included billions of non -funded commitments, upset their bond market. In the early 1990s, the so -called “Bond Vigilantes” (volunteer bond guard) were considered strong enough to force President Bill Clinton to reduce US debt.