Rates Shock Puts Government Finances Under Pressure as Asia Holds Up Relatively Well

The global rates shock is becoming a debt-sustainability question as well as a monetary-policy question. PGIM sees resilient growth, expensive energy, and further central-bank tightening putting pressure on government finances, particularly in Europe. The lower-than-expected US Personal Consumption Expenditures (PCE) inflation readings released on 30 September reduced the immediate pressure for another Federal Reserve increase.

Asian fixed income has absorbed substantially less of the global repricing. Eastspring Investments found that Asian government yields generally rose much less than US Treasury yields over the previous month, while Asian credit remained ahead of US corporate bonds year-to-date.

Ai financing is spreading into public infrastructure and local credit markets. BlackRock estimates that AI-related municipal-bond issuance could reach USD11 billion in 2026, still less than 2% of expected overall US municipal issuance.