Economics expert Greg Ip analyses rising bond yields and their impact on the economy

Treasury bond yields rose sharply, with the 30-year note climbing above 5% for the first time in 19 years. Higher yields make government borrowing to finance deficits more expensive and can translate into higher mortgage rates for consumers. Similar increases occurred internationally, with Japan reaching record government bond yields and the U.K. hitting a 28-year high. The rise is driven by persistent inflation, renewed pressure from higher energy prices tied to war-related disruptions, and large government deficits that are expanding. Investors dislike both inflation and deficit-driven borrowing. Political shifts toward populism have reduced willingness to make difficult decisions needed to bring deficits down.

"I think there's basically three things that are common to all the countries that are seeing this big rise in long-term interest rates. The first is inflation. We never really completely defeated it after COVID, and now we just got a new dose of it with the rise in energy prices as a result of the war against Iran and the closure of the Strait of Hormuz. The second is government deficits. They're big and getting bigger."

"More borrowing by governments and higher inflation are two things that the people who lend money in the bond market really don't like to see. The third thing I think is the trickiest and that's the whole political culture around the world has tilted towards populism, populism of the left, populism of the right. And essentially, what you see as a result is a complete lack of any will to take the very hard political decisions necessary to bring deficits down."

"Yields on Treasury bonds rose sharply this week. The 30-year note climbed over 5%, the highest level in 19 years. Now, for the government, that means the money it borrows to finance its deficit spending is getting more expensive. For consumers, it could mean higher mortgage rates."

"And this is not just happening in the U.S. This week, yields for government bonds in Japan reached their highest level ever. In the U.K., they reached a 28-year high."

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