How many times have we heard that oil prices and inflation are
increasing the cost of governments’ borrowing? How many times have we
heard that this is because of events in the Strait of Hormuz?
You may be surprised, or not, to discover that they are not telling you the full story.
Oil
prices and inflation are proximate causes, economist Peter C. Earle
says. The real problem began several years ago during the so-called
covid pandemic.
Something unusual is happening in global bond markets, and it is more consequential than the usual swings in yields. Government borrowing costs are rising across much of the developed world. The US 10-year Treasury is approaching 5 per cent and the 30-year Treasury yield is at levels not seen since 2007. “Meltdown”
is too dramatic a word, but the bond market is clearly sending a
message. Bond prices fall when investors demand higher yields, and
global investors clearly want to be paid more for lending money to
governments carrying large debts, running persistent deficits and still
contending with above-target inflation.
Japan is perhaps the most striking case. Its 10-year government bond yield has moved through 3 per cent after spending most of a generation near zero, and its 30-year borrowing cost has risen above 4 per cent – a multi-decade high. Australia’s 10-year recently reached 5.16 per cent. Germany’s 10-year Bund has been trading around 3.3 per cent, with the 30-year above 3.8 per cent. Britain, France and other developed economies are seeing versions of the same thing. The particulars differ from country to country, but the direction does not....<<<Read More>>>...
