Governments face extra debt costs as stimulus dries up
PARIS (AFP) - Governments face a rise in their borrowing costs due to the winding down of monetary stimulus programmes and as investors bet on central banks hiking interest rates sooner than promised.
Moody's Analytics warned this week that "US rates could rise as the Fed moves to slow its purchases of long-term debt, which in turn could push up the yields on European government bonds".
That has already begun. The yield on the debt of the United States and top European countries, as well as emerging economies, has risen recently as investors bet that the US Federal Reserve could begin as soon as next month to lower the amount of monetary stimulus it injects into the economy.
The US$85 billion (S$108 billion) per month that the Fed has ploughed into the US economy led to lower bond yields in the US, as well in many other countries as easy money went abroad from the US in search of somewhat higher risk and yields elsewhere. Recently, however, investors have factored in the prospect of the easy money tap being slowly closed down. This has pushed up yields on US Treasury bonds, and has caused some of the money placed abroad to be withdrawn, pushing up sovereign bond yields elsewhere.