US 30-year yields are now up to the highest since 2002 as 30-year yields rise 5 basis points to 5.61%.
There is a simple story here, the combination of inflation, too-high fiscal spending, rising energy prices and a glut of debt is making it more-costly to borrow. There is only so much money in the world to go around for lending an the AI capex boom soaked up as much as it could while the US government runs a deficit at +6% of GDP.
Borrowing costs have now risen more than 30 basis points in a week and 70 basis points since it briefly looked like Iran peace in June.
I don’t like the look of that chart. It’s rising every day and it seems as though there are no buyers for debt, despite the increasingly-attractive yields. Worse yet, the higher US government cost of borrowing cascades down to businesses and consumers, sapping future economic growth.
There isn’t really a solution either, or not one that any leaders are prepared for. The Fed can hike rates and crush inflation but they don’t sound like they’re in any hurry to take the economic pain. In Congress, there is no base of fiscal conservatism left, the Tea Party movement is long dead and co-opted by a MAGA party that now wants to give away $5000 to each adult American at enormous cost.
Whether the trigger for this move was inflation, spending or capex, it doesn’t really matter for broader markets. The cost of capital has gone up and that makes investment less attractive, hurting equities. There is also a sense in all markets of hunkering down until after the midterms and until there is some window towards a solution in Iran. There’s a sense that things will have to get worse in markets before there is enough political pressure to sort it out.
This article was written by Adam Button at investinglive.com.