SINGAPORE/LONDON, Sept 15 (Reuters) – Government borrowing costs hit their highest level since the 2008 financial crisis on Tuesday, with 10-year U.S. Treasury yields rising above 5%, highlighting the tension between fast-growing global debt loads and so far resilient economic growth.
The average 10-year yield for the Group of Seven largest economies hit 4.285%, the highest since mid-2008 and a full percentage point above where it was prior to the start of the Iran war. U.S. Treasury Secretary Scott Bessent said on Tuesday that rising bond yields were due to “global issues” but offered no other details about specific causes.
The widening conflict has sent oil back above $100 a barrel, which has heaped pressure on central banks to raise interest rates to tackle inflation — a major reason bond yields are up. The Federal Reserve is expected to raise rates for the first time since 2023 on Wednesday, according to money markets, while the Bank of Japan is expected to hike on Friday. The European Central Bank raised rates last week and could deliver a string of rate increases over the coming months.
The bond selloff has raised the cost for governments to borrow but also left them with higher interest bills that siphon funds from social, defence and other programmes, which in turn raises questions as to the sustainability of their debt burdens.
“Yields at 5% aren’t a problem if you’re growing 6.5%. But if you’re growing 5% with yields at 5%, that might be a different story,” said Samy Chaar, chief economist at Lombard Odier.
The move in the 10-year Treasury yield above 5% is a headache for sovereign and corporate borrowers everywhere, given that it is a benchmark for virtually every other asset in financial markets.
And while the U.S. economy may be growing quickly enough to sustain 10-year borrowing rates above 5%, other countries are less well equipped to do so.
The other problem that investors are dealing with is new Federal Reserve Chair Kevin Warsh’s dislike of forward guidance, meaning uncertainty — and therefore, volatility — is picking up and investors are less willing to offer policymakers the benefit of the doubt.
“All central banks are now following this new era of no forward guidance, just building up credibility and trust. And as you can see now in the bond markets, that currently isn’t working,” Shriya Samarth, head of EMEA rates at market maker StoneX, said.
“You’ve got AI capex throwing a spanner in the works. You’ve got fiscal anxiety. US debt is now at $40 trillion. Historic high debt-to-GDP ratios in the UK and the euro zone, that’s adding to complications,” she said.
