Public borrowing costs soar as inflation fears push global bond yields higher
Rising costs: Chancellor Jeremy Hunt
Government borrowing costs soared around the world yesterday as growing 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.
This threatens to raise borrowing costs for households and businesses, further affecting the economy.
The 10-year US Treasury yield hit 4.688 percent (its highest level since 2007), while the 10-year German bond yield rose to a 12-year high of 2.98 percent. French bond yields also hit their highest level in 12 years, while Italian yields rose to levels not seen in a decade.
UK ten-year bond yields hovered around 4.5 per cent, although this was below a 15-year high of over 4.7 per cent hit last month.
Borrowing costs have risen in recent days amid warnings that the U.S. Federal Reserve may need to raise interest rates once again to rein in inflation.
And while inflation has eased in the West in recent months, rising oil prices have raised fears that the battle is far from over.
Oil hit a new ten-month high above $97 a barrel yesterday and many analysts now expect it to surpass $100 once again.
“A wall of worry is hitting the bond market, and the latest trigger is the price of oil,” said Jim Leaviss, fund manager at M&G Investments. He said the rising price of crude oil was leading investors to ask: “What if inflation isn’t dead?”
