The 30-year government bond yield briefly rose to 5.34% yesterday, its highest point since 2007.
As bond yields rise, government borrowing becomes more expensive, while higher long-term rates can also drive up mortgage and auto loan costs.
What is going on?
Investors fear that the collapse of the 60-day ceasefire without a durable peace agreement could send oil prices higher and fuel inflation.
Meanwhile, the government’s budget deficit jumped to $432.3 billion in July, its highest monthly level since March 2021. The deficit has reached nearly $1.8 trillion this year.
The government has also spent about $1.2 trillion on interest payments for its nearly $40 trillion debt.
At the same time, Kevin Warsh’s decision to provide fewer signals about future interest rate moves is leaving investors with less clarity. According to some analysts, this is pushing them to demand higher returns for taking on greater risk amid uncertainty.
Persistent inflation above the Federal Reserve’s 2% target is making investors more hesitant to hold long-term bonds.
Bond yields also climbed in Japan, Germany, France and Britain, showing that worries about inflation and government borrowing extend beyond the US.