Bond yields hit long-term highs as debt worries grow

Government bond yields in the United States, Europe and Japan have climbed to levels not seen in years, raising borrowing costs for governments, businesses and consumers.

The yield on 30-year US Treasury bonds reached 5.34% in mid-August, its highest level since 2007, before easing to around 5.17%. Germany's 10-year bund yield is around 3.22%, a level not seen since 2011. France's 10-year OAT stands at 4.05%, its highest since 2008, while Japan's 10-year yield has risen to nearly 2.9% from 2.1% in February.

Bond yields rise when investors demand higher returns to buy or hold government debt. Economists cited in the article pointed to growing public debt, high government spending and inflation pressures as key drivers.

Frederik Ducrozet, head of macroeconomic research at Swiss bank Pictet, said public debt has kept growing globally since the 2008-2009 financial crisis. Charlotte de Montpellier, an economist at ING, said governments issuing more bonds are competing for capital and therefore have to offer higher interest rates.

The pressure is especially visible in the United States, where government debt topped $40 trillion this month. Washington's interest outlays reached $970 billion last year, up from $350 billion in 2021.

Investors are also watching US monetary policy under Federal Reserve head Kevin Warsh, with inflation running at 3.7%, compared with the Fed's 2% target. De Montpellier said uncertainty over US monetary policy was one reason yields have increased.

Higher bond yields can feed through into costlier mortgages, car loans and business credit. De Montpellier said that could mean fewer home purchases, fewer business financing projects and a slower economy.