Newsroom
Governments around the world are encountering unexpected resistance in the bond markets as long-term debt issuances increasingly struggle to attract investors, marking a break from years of routine fundraising.
Recent auctions in the U.S. and Japan saw tepid demand for 20-year bonds, forcing governments to either miss fundraising targets or offer sharply higher yields to draw interest. Analysts say the trend stems from a “classic supply and demand mismatch,” as noted by Amanda Stitt of T. Rowe Price.
Key factors include central banks scaling back their bond holdings acquired during the pandemic and traditional buyers such as pension funds and insurers pulling out. These shifts come as governments ramp up borrowing, Germany among them, to finance infrastructure, defense, and other priorities.
“The era of cheap money and long-term financing is over,” Stitt said. The increased competition among issuers is driving up borrowing costs, with yields on 30-year bonds in countries like the U.S., UK, and Japan hitting levels not seen in decades.
The implications are significant. Long-term U.S. Treasury yields have hovered near 5%, levels last seen during the financial crisis. In the UK, 30-year bond yields reached their highest since 1998, while Japan’s have climbed to 3% after years below 1%.
The surge in yields is raising alarms over debt sustainability and exposing governments to greater market risk. The OECD reports debt servicing costs across member nations are now at their highest since at least 2007. Investor warnings cite the UK’s 2022 “mini-budget” turmoil and current U.S. trade tensions as cautionary tales if fiscal discipline falters.
