Rising bond yields point to pressure beyond government debt markets
Stubborn inflation, corporate borrowing demand and large public debts are squeezing holders of government bonds, The Economist reports.
Government bond yields are rising as persistent inflation, demand from companies for capital and elevated public debt weigh on fixed-income markets, according to The Economist.
The pressure is being felt directly by holders of government bonds, whose assets face losses as yields rise. The combination of inflation, corporate borrowing and government financing needs is also raising the risk of wider economic strain.
The developments come against a backdrop of stronger US high-grade bond issuance. Large offerings included GlaxoSmithKline’s US$6.5 billion deal, which is backing its acquisition of Nuvalent, and UBS’s US$6 billion issue.
Merger-and-acquisition financing has also strengthened. About US$31 billion, or 20 per cent of total supply, was allocated to M&A across 10 offerings in August.
Earlier market context also recorded Brent crude near US$100 a barrel alongside elevated US Treasury yields amid Iran-US tensions. The two-year Treasury yield reached 4.42 per cent and the 10-year yield was around 4.8 per cent, while markets considered possible Federal Reserve action.
The supplied material does not establish whether inflation, borrowing demand, public debt or their combined effect is the main driver of the latest move, and no rate rise by the Federal Reserve was confirmed.
