Bond Markets Shudder: Global Investors Worry About Debt Levels

This week, global bond markets have been in a tailspin. The cause? A wave of new government debt hitting the market. Investors are fretting about just how much money governments are borrowing. For instance, the U. S. alone raised $119 billion by selling bonds that mature in three, ten, and thirty years. This, combined with companies also looking for cash at the start of the year, has investors demanding higher returns. The yield on the 10-year U. S. Treasury bond, which influences many other borrowing costs, has been on the rise. It even briefly surpassed 4. 7% for the first time in months. Similar trends are seen in Britain and Germany. British government bonds, or gilts, saw a sharp sell-off, while German 10-year bonds also rose in yield.Ian Lyngen, an interest rate strategist at BMO Capital Markets, sees this as a global trend. "Everyone is worried about deficit spending, more supply, more treasury issuance, more gilt issuance, " he said. Interestingly, this rise in yields comes as the Federal Reserve is lowering its own interest rates. But the Fed's rates affect short-term borrowing, while longer-term rates are influenced by how investors think the economy will do in the future. The upcoming U. S. December jobs report could add more drama. A strong jobs number might make investors think the Fed will slow its rate cuts, or even reverse them, pushing up borrowing costs. But if the jobs report is weak, concerns about the economy overheating could ease, and yields might drop. Lyngen calls the jobs report a "wild card. " It could significantly impact where bond yields go next.