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Long bond yields keep rising as fiscal and AI themes drive rates higher
Westpac Economics argues the long end of the yield curve is being pulled up by higher expected bond supply tied to aging-related spending, AI and energy transition investment, and defense spending.
Bond yields have risen in recent weeks, with the long end of the maturity spectrum moving higher, and Action Forex links the shift to more than just near-term monetary policy expectations.
The outlet says AI-related investment themes and what it calls US fiscal incontinence reinforce a broader trend toward a global rates structure that sits higher than the pre-pandemic era, pointing to the idea that the long-run balance of saving and investment matters most over time horizons beyond central bank settings.
Action Forex describes the pre-pandemic backdrop as having higher saving rates, supported in part by official reserve accumulation, paired with weaker investment driven by frayed confidence, austerity in some countries, and banks in North America and Europe recapitalizing and lending less.
It also argues that forces pushing “neutral” rates higher include aging-related public spending, private investment needs for the energy transition and AI, and higher defense spending, including Germany’s constitutional change last year to enable more deficit spending for defense purposes.
Action Forex further explains, at a conceptual level, that nominal government bond yields combine expected inflation and real yields, where real yields depend on expected future policy rates plus a term premium, with the term premium acting as a catch-all reflecting bond market demand and supply dynamics.