The United States has not borrowed at such high costs since June 2007: long‑term rates are rising sharply, and markets are increasingly concerned. On Tuesday, the yield on 30‑year US bonds reached its highest level since 2007, hitting around 5.3%, indicating heightened tension in the bond market.
This trend is not unique. Most countries are facing a similar situation: the yield on 30‑year French bonds reached its highest level since 2008 at 4.9%, while Germany is expected to issue long‑term bonds on Tuesday at the highest rate since 2011, around 3.77%.
There is no panic yet, but concern is growing. Fears of high and persistent inflation are prompting lenders to demand higher yields on government bonds. The trend is also being driven by the prolonged and expanding war that the United States and Israel have launched against Iran.
Across the ocean, inflation in July again stood at 3.4%, significantly above the 2% target set by the US Federal Reserve. Meanwhile, the Fed has kept the key rate unchanged, and its new head, Kevin Warsh, has not provided clear signals regarding the decision at the next meeting, scheduled for mid‑September. This uncertainty is contributing to the rise in bond yields.
Growing deficits and competition
At the same time, budget deficits remain generally high, and rising rates make it difficult to reduce them. In the United States, according to the Congressional Budget Office, the deficit for the current fiscal year is expected to exceed 2.1 trillion dollars. This is 200 billion dollars more than expected in February, meaning additional debt issuances will be required. Meanwhile, customs revenues have been significantly lower than forecast, and the authorities continue to reimburse customs duties canceled by the Supreme Court — another 33 billion dollars was returned last month.
In Europe, government debt is also increasing due to rising investments in defense and infrastructure. In Germany, Commerzbank estimates that the country’s borrowing volumes next year will reach record levels, while rates will be significantly higher than in the past 15 years.
In addition to the serious deterioration of the geopolitical situation and the economic slowdown, Western countries are also increasingly competing for capital with technology giants that are issuing huge amounts of debt in the race for leadership in AI. These companies are also using bonds to attract financing, and their recent issues have drawn substantial capital. This trend is likely to continue.
“Many factors suggest that yields will be structurally higher this decade”, notes Skylar Montgomery Conning, an analyst at Bloomberg.
The most striking example is undoubtedly Japan. After a period of very low rates since the mid‑1990s, the country has seen a sharp rise in bond yields since the beginning of last year. This reversal in Japan could have consequences for other countries, particularly France. Japanese investors, who have historically favored French bonds, may become more interested in the domestic market, which could further increase the cost of borrowing for France.
Source: BFMTV
