FT analysis warns costs could double by end of Q1 next year if rates keep climbing

Dollar bills. [Getty Images]
Dollar bills. [Getty Images]

Soaring global bond yields since the outbreak of the Middle East war have pushed up borrowing costs for the Group of Seven nations by $16 billion, according to a new analysis.

The Financial Times reported Sunday (local time) that its analysis of government bond issuance data across G7 countries found additional interest costs had reached $16 billion — and that if rates continue to rise, those costs could climb to $34 billion by the end of the first quarter of next year.

The $16 billion figure represents the actual increase in borrowing costs compared with pre-war interest rate levels. The $34 billion estimate is based on projections of each country's planned debt issuance and maturity profiles.

The FT said nearly all G7 government bonds across all maturities it analyzed were trading at higher yields than in February, driving up interest costs on newly issued debt.

The United States bore the largest share of the increase, with its additional interest burden reaching $10.6 billion — a figure that could grow to $21.7 billion by the end of the first quarter of next year.

US Treasury yields have risen sharply in recent weeks as investor concerns mount over growing public debt and inflation. The surge has continued despite the Treasury's expanded bond buyback program.

Other G7 members that are heavy energy importers — including the United Kingdom, Italy, Germany and Japan — are also feeling the strain, as the closure of the Strait of Hormuz has pushed up inflation forecasts by threatening energy supplies. This adds to the pressure on governments already grappling with strained public finances.

Mohit Kumar, chief European economist at Jefferies, warned that rising rates posed a major risk to both equity and bond markets. "Rising interest rates are a big risk for equity and bond markets — if rates rise further, we are entering territory where it could be negative for both," he said, adding that a move in the 10-year US Treasury yield above 5 percent would trigger a negative reaction in stock markets.

Kumar also said fiscal deficits were widening globally as governments pursued expansionary policies. "On top of that, there is a risk of populist policies ahead of the US midterm elections and general elections in various European countries," he added.

The war is not the only force driving bond yields higher. Political uncertainty and geopolitical risk in major economies, rising defense spending, demographic shifts and climate-related expenditure are all adding to government outlays. A surge in corporate bond issuance to fund AI investment is also intensifying competition in bond markets and pushing yields up.

Michele Martinez, chief European economist at Societe Generale, said the trend reflected a repricing of capital in a less abundant world. "The AI investment boom and other structural spending needs — including defense, energy transition and reindustrialization — are increasing competition in the government bond market," she said.


yckim6452@heraldcorp.com