Governments around the world are moving away from current borrowing rates, which is affected by the high cost of long-term borrowing. The current trend also limits the ability of businesses and households to borrow and spend money.
Reports UNN with reference to Вloomberg.
Details
The cost of long-term borrowing is increasing for major economies.
From the US to Japan, the long-term cost of borrowing is rising. The reason is that investors are questioning the ability of governments to effectively cover significant budget deficits.
The yield on thirty-year bonds this week exceeded 5% in the US. This is close to the highest level recorded in 2007. In Japan, the yield on long-term bonds reached its highest level since records began in 1999.
Investors warn that governments cannot continue to borrow at the same rate when interest rates were close to zero. Governments of a number of countries are moving away from the high rates of borrowing that have been characteristic recently.
Вloomberg recalls and draws a parallel with the situation in the 1990s and 2010s, when the cost of bonds rose, governments were forced to cut spending.
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The increase in the cost of borrowing creates a "ripple effect", higher rates affect the opportunities of enterprises and households. Hopes for a relaxation of monetary policy are still illusory.
The focus is on Washington, which is the largest borrower
The sudden increase in the yield on 30-year US Treasury bonds on Wednesday triggered a sell-off of American stocks. The S&P 500 index fell by 1.6%, the biggest drop in a month.
Meanwhile, the US is adjusting its plan to introduce customs tariffs against the background of an "unstable" bond market. American legislators are also discussing further tax cuts.
Borrower credit rating
Moody's Ratings stripped the Trump administration of its highest credit rating. According to the US Congressional Budget Office:
The amount of outstanding treasury bonds has soared from $4.5 trillion in 2007 to almost $30 trillion today,
At the same time, the ratio of total US government debt to the size of the economy has increased from approximately 35% in 2007 to 100% now, adds Вloomberg.
Let us remind you
The European Commission is lowering its growth estimates for the bloc in 2025 due to the consequences of Trump's tariffs. The Eurozone will grow by only 0.9%, and the EU by 1.1% this year, according to the Commission's annual spring forecast.