Global Bond Market Sends Warning Signal on Fiscal and Inflation Risks

The global bond market is sending a warning signal to governments about their fiscal and inflation risks. Long-term borrowing costs in developed countries, including the U.S., Germany, and Japan, have reached their highest levels in decades due to ballooning government debt and geopolitics.

Kjersti Haugland, chief economist at DNB Carnegie, believes that the post-financial crisis period of low rates and subdued inflation may be behind us. This coincides with extremely high levels of government debt in countries like Japan, the U.S., France, and the UK.

Rising oil prices are exacerbating inflation worries, and 30-year bond yields in the U.S. have hit their highest since 2007. In Japan, 10-year borrowing costs reached a three-decade high just under 3%. European countries like Germany and France also saw significant increases in their 10-year Bund yield and French yields.

The rising yields are hitting other assets, with major stock markets experiencing a selloff. The competition for capital from AI hyperscalers is further exacerbating the selling, as investors become increasingly concerned about the risks associated with government debt and uncertainty over policymaking.