Government borrowing costs are rising as inflation fears push up global bond yields
Rising costs: Chancellor Jeremy Hunt
Government bond costs rose around the world yesterday as mounting concerns about the global economy wreaked havoc on bond markets.
As investors worried about persistent inflation and “higher for longer” interest rates, bond yields rose in the United States, Britain and across Europe.
That threatens to drive up borrowing costs for households and businesses, further damaging the economy.
The yield on 10-year US government bonds reached 4.688 percent – the highest level since 2007 – while the yield on 10-year German government bonds rose to a 12-year high of 2.98 percent. French bond yields were also at their highest level in twelve years, while Italian yields rose to levels not seen in ten years.
British 10-year yields hovered around 4.5 percent, although this was down from a 15-year high of more than 4.7 percent reached last month.
Borrowing costs have risen in recent days after warnings that the US Federal Reserve may have to raise interest rates again to keep inflation under control.
And while inflation has eased across the West in recent months, rising oil prices have fueled fears that the fight is far from over.
Oil hit a new 10-month high above $97 a barrel yesterday, with many analysts now expecting oil to rise above $100 again.
“A wall of worry is hitting the bond market, and the latest trigger is the oil price,” said Jim Leaviss, fund manager at M&G Investments. He said the rise in crude oil prices led investors to wonder: “What if inflation isn’t dead?”