US Borrowing Costs Rise
US long-term borrowing costs have increased despite government intervention
US borrowing costs have risen again, with the interest rate on 30-year bonds reaching around 5.27%. The Treasury Department had announced it would buy back more debt to lower rates, but economists say the move has proved short-lived.
According to John Canavan, lead analyst at Oxford Economics, the response to the government's intervention was unsurprisingly short-lived, with traders focused on the daunting amounts of global borrowing from governments and corporations, as well as increases in oil prices.
Background
The US national debt has passed $40tn, more than doubling in a decade, with the rise reflecting years of heavy spending under both the Trump and Biden administrations, along with higher interest payments. The Treasury Department's intervention aimed to boost demand for bonds and lower borrowing rates, but the strategy has appeared to have only worked in the short-term.
Bond Market
Bond investors typically demand higher returns - or yields - if inflation is high or they expect it to be elevated in the future. Yields had fallen sharply earlier this week to 5.18% from an almost two-decade high of 5.34% following the Treasury Department's announcement, but have since risen again. The following table shows the recent yields on 30-year bonds:
| Yield | Date |
|---|---|
| 5.34% | earlier this week |
| 5.18% | after Treasury Department's announcement |
| 5.27% | on Friday |
Global Economy
Global borrowing costs have spiked in recent months due to higher oil prices caused by the US-Iran war disrupting supplies and stoking fears of inflation. Large amounts of cash being borrowed by tech firms to develop Artificial Intelligence (AI) have also contributed to higher yields. The dollar has weakened in response to volatility in the bond markets, making US goods exports cheaper, but imported goods more expensive.
The BBC reports that gold climbed to a more than three-month high on Friday amid uncertainty in the global economy, with investors seeing gold as one of the safest places to invest. Treasury Secretary Scott Bessent sought to blame the Biden administration for the current situation, telling US media that the US was left with a mess. The Treasury Department has been contacted for comment on the market reaction, but has not yet responded.
