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G7 government debt pressures push Treasury yields to 2007 highs
U.S. 30-year Treasury yields have risen to the highest level since 2007 as higher borrowing costs flow through to mortgages and other loans.
U.S. government debt has topped $40 trillion for the first time, highlighting mounting funding pressures across major economies as spending demands rise, including for ageing populations, climate change and defence, according to Reuters.
This year, the Iran war has rekindled inflation risks, while Europe’s increasingly volatile weather is adding strain to public finances. Reuters also linked the jump in borrowing costs to investors demanding higher yields to compensate for the risk of holding sovereign debt, and noted that central banks’ past rate hikes have driven government bond yields higher across the G7 since the COVID-19 pandemic and the Russia-Ukraine invasion.
With elevated longer-term rates, sovereign debt functions as a benchmark for pricing across the economy, including corporate borrowing and household mortgages. Reuters said the gap between shorter and long-dated government yields has widened sharply, making it relatively more expensive to borrow for longer periods.
The pressure is also being intensified by the surge in bond buying from AI “hyperscalers,” while fiscal concerns and reductions in bond holdings by central banks, along with insurers and pension funds trimming purchases of long-dated debt from Japan to Britain, are further weighing on markets. To reduce the impact, governments have leaned toward issuing shorter-maturity bonds, but Reuters warned that this raises refinancing demands because debt must be repaid or refinanced sooner.