Transcript
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Alex Osola (0:01)
Which u do you listen to? Is it get optioning those options or let's do a little research. Learn more@finra.org TradeSmart Bond yields around the world are rising, a sign that investors are worried.
Spencer Jacob (0:23)
You're really entering a kind of a dangerous territory there because we when central banks lend a helping hand, it has happened before in history to a government to pay the bills. That's tantamount to money printing.
Alex Osola (0:35)
Plus, Florida may become the first state to end vaccine mandates. And here's what we know about America's approximately 1100 billionaires. It's Wednesday, September 3rd. I'm Alex Osola for the Wall Street Journal. This is the PM edition of what's news, the top headlines and business stories that move the world. Global bond yields are on the rise. Yesterday in the UK the yield on 30 year gilts, their equivalent of bonds, hit its Highest level since 1998. Long term yields recently hit multi decade peaks in France and Japan too. In the US the 30 year treasury yield pulled back after briefly topping 5% this morning. For more, I'm joined now by WSJ investing columnist sports Spencer Jacob. Spencer, what is going on? Why is this happening?
Spencer Jacob (1:28)
Well, there's a bout of anxiety about how governments finance themselves and the willingness of investors to extend themselves and take a risk on these longer maturity bonds, which in many countries are 30 years. You're taking the most risk because inflation has the most potential to destroy the value of those bonds. You're also taking a risk because should the unthinkable happen and those countries not be able to repay you or have to resort to some extreme measures to repay you, you're most exposed to danger. And so the people who play in that space generally are not you and I that used to be, but it's pensions, insurance companies that really have very long term liabilities and tend to buy these things and even they are getting nervous.
Alex Osola (2:11)
What is making investors nervous about these countries in particular?
Spencer Jacob (2:15)
Well, what you saw in the UK and you've seen in the last few days is and this is unusual, this is the kind of thing you do see in emerging markets, but not in a developed country like Britain. The currency is sinking in at the same time that bond yields are rising. Generally, people are looking to put money to work around the world and the interest rate rises in a certain country. That makes parking some money there more attractive. When those interest rates rise or the yields on the bonds that you combine, that country rise and the currency sinks, then you know you have a problem, it means that they're going to have to keep lifting that rate, possibly and costing their government a lot of money, because every time that a newer bond is issued, that's more of a strain on the Treasury. And you're seeing that around the world. And just putting the context, what you had happen the last 15 years or so in the world is that interest rates for much of that period in the developed world were very low. Governments spent a lot of money, especially during COVID they had record budget deficits, including in the U.S. and now that interest rates have normalized, a lot of the world, as those old bonds roll over and you have to issue new ones to finance today's deficits, it's getting really expensive. The U.S. for example, pays a trillion dollars a year in interest. A trillion dollars. That's more than the entire defense budget.