The spike in oil energy costs caused by the Middle East crisis has put pressure on central banks to temper global inflation. (AFP Photo)
Government borrowing costs have climbed to multiyear highs across major economies as rising oil prices fuel inflation concerns and expectations of further interest rate increases, putting pressure on businesses and households seeking credit.
The benchmark U.S. 10-year Treasury yield reached 5.04 percent on Sept. 15, its highest since July 2007. The 30-year yield touched 5.4 percent, also its highest since 2007.
Japan’s 10-year yield reached a three-decade high above 3 percent. Germany’s benchmark hovered near its highest since 2009, while French yields approached an 18-year peak. In Australia, 10-year yields climbed to about 5.39 percent, their highest in 15 years.
Treasuries provide a benchmark for dollar borrowing worldwide.
Governments and companies typically pay a premium above U.S. yields, so a rise in that benchmark can make new debt more expensive even if the premium investors demand for credit risk remains unchanged.
In the United States, higher Treasury yields feed into mortgage rates and corporate financing costs. They also increase the appeal of government bonds relative to stocks, raising the returns investors expect for taking greater risk.
“There’s been no catalyst to reverse the current momentum that we’ve seen in bond yields,” Jim Barnes, director of fixed income at Bryn Mawr Trust, told Reuters.
Oil supply disruptions have added to inflation concerns. Brent crude eased to $107.82 a barrel in early trading on Sept. 16 after gaining more than $3 in the previous session.
An attack forced Saudi Arabia’s East-West pipeline offline, disrupting a route that carries crude to the Red Sea without passing through the Strait of Hormuz. Oil loadings at the kingdom’s Yanbu port were also suspended, according to media reports.
Ahead of the Fed’s Sept. 16 decision, markets had priced in a more than 90 percent chance of an increase of at least 25 basis points, according to CME FedWatch.
Large budget deficits and growing corporate borrowing needs are also weighing on debt markets. Shriya Samarth of StoneX cited artificial intelligence spending and concerns about public debt as factors complicating the outlook.
Washington must issue bonds to finance budget shortfalls and refinance maturing obligations, while companies are borrowing to fund major AI projects.
The increased supply can put further upward pressure on yields as borrowers compete for investors’ funds.
Higher refinancing costs gradually add to governments’ interest bills, leaving less room for other spending.
For energy-importing economies, more expensive fuel also raises import costs and complicates efforts to bring inflation down.
Bank of America U.S. economist Aditya Bhave said moving quickly to raise rates would give the Fed “a better chance of quelling inflation and keeping a lid on long-end rates.”
