Soaring bond yields threaten trouble

Round numbers should not matter in financial markets, but they do. How many people pay attention to where 11-year Treasury bonds are trading? So seeing yields on America’s 30-year government debt stuck above 5 per cent since May 21 has given investors the shivers. The latest jump came shortly before the House of Representatives passed President Donald Trump’s “big, beautiful” – and deficit-widening – budget Bill by one vote on May 22.

It is no wonder that investors are reassessing the risk of long-term lending to Uncle Sam. Even before the budget Bill cuts tax revenues, America’s government has borrowed US$2 trillion (S$2.6 trillion) – or 6.9 per cent of gross domestic product – over the past year. Combined with the chaotic policymaking of recent months, and Mr Trump’s threats against America’s institutions, that has put the once-unquestionable haven status of Treasuries up for debate. But for money-managers looking to diversify, there is another headache. The debt of other governments looks newly risky, too, with long-term yields rising across much of the rich world.