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Long-term government bond yields in major economies including the United States, Japan, and France have surged to their highest levels in decades, intensifying a sell-off in the global bond market.
Amid growing concerns over expanded fiscal spending and increased future government bond supplies in various countries, long-term yields are facing upward pressure compounded by massive corporate bond issuances from big tech companies to scale up artificial intelligence (AI) investments.
According to the Wall Street Journal and Bloomberg on the 18th local time, the yield on the 30-year U.S. Treasury bond spiked to around 5.33% during intraday trading, marking its highest level in 19 years since 2007.
The yield on the 10-year U.S. Treasury bond, a benchmark for global market rates, also recently climbed to around 4.75%, reaching a 19-month high.
Japan's 10-year government bond yield rose as high as 2.945% during intraday trading, hitting its highest level in about 30 years since 1996.
Long-term government bond yields in Germany and France have also soared to levels not seen since 2011 and 2008, respectively.
Traditionally, a steep rise in long-term government bond yields is interpreted as a warning signal that investors are concerned about the fiscal health of respective nations.
Analysts note that growing inflation concerns driven by the prolonged war in the Middle East and the likelihood of increased bond issuance resulting from expansionist fiscal policies are prompting investors to demand higher yields for holding long-term bonds.
In the United States, concerns are mounting that the rise in long-term interest rates could further amplify the interest burden on the nation's rapidly ballooning national debt.
According to the Washington Post, the national debt tallied by the U.S. Department of the Treasury the previous day stood at $39.9 trillion (approximately 56,338 trillion won), with a strong likelihood of surpassing $40 trillion this week.
Data from the Congressional Budget Office indicates that annual federal government interest expenses alone are projected to exceed $1 trillion this year.
This scale is comparable to the budget of the U.S. Department of Defense.
The burden stemming from fiscal expansion appears to act as a common factor driving up long-term yields in other major economies as well.
In Japan, concerns are growing over future fiscal burdens and increased government bond supplies as Prime Minister Sanae Takaichi pursues expansionist fiscal policies to stimulate the economy.
Europe is also facing persistent concerns over slowing growth and fiscal and debt burdens.
Adding to the recent global bond sell-off is a new factor: the AI investment boom.
As major tech companies such as Microsoft and Meta issue massive corporate bonds to purchase Nvidia's AI chips and build data centers, a dynamic is forming where they compete with government bonds for investor funds.
Investment bank Barclays noted in a recent report that the scale of corporate bond issuances by tech companies for AI investments is expanding and their maturities are lengthening to 10 years or more, stating, "What has changed this year is the scale and maturity of AI-related corporate borrowing."
Market watchers suggest that the upward trend in long-term government bond yields could persist for the time being.
Daniela Avanzini, a market analyst at Capital.com, pointed out, "Slowing growth, easing inflation, and future easing policies by the Fed could pull down short-term yields in particular," but added, "Long-term yields still face massive government bond supplies, large fiscal deficits, AI-related corporate bond issuances, and energy and inflation uncertainties."
Such rises in long-term government bond yields drive up long-term consumer loan rates, including mortgages, compounding the living and housing cost burdens on households.
Consequently, further increases in U.S. long-term bond yields could spell political trouble for President Donald Trump and the Republican Party ahead of the U.S. midterm elections in November.
However, some analysts suggest it is still premature to excessively panic over the U.S. Treasury market.
Yardeni Research stated, "We are not hitting the panic button yet," while adding, "We are monitoring closely whether the 'bond vigilantes' (investors who protest excessive government spending by collectively selling bonds and driving up yields) will push that button."
(Photo: AP, Yonhap News)
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