The bond market is telling us the free lunch is over
Summary
The era when rich countries could borrow freely without facing higher costs or inflation appears to be ending. Rising inflation, government borrowing, and supply problems are causing interest rates to rise and become more unpredictable worldwide.Key Facts
- For many years, rich countries could spend and cut taxes without increasing borrowing costs or inflation.
- Now, the global bond market signals that governments will face higher costs for borrowing money.
- Supply problems, government debt, and money needed for artificial intelligence projects are driving inflation and demand for capital.
- This leads to higher interest rates, making borrowing more expensive for homebuyers and companies.
- Long-term government bond yields in the U.S., Japan, and the U.K. have recently hit their highest levels in years.
- Investors in government bonds face risks from inflation reducing returns and future rises in interest rates.
- Rising mortgage rates in the U.S. show the impact on everyday Americans.
- Policymakers will face tougher choices balancing economic support and the risk of increasing borrowing costs.
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