The rise in 30-year government bond yields this year had a respite in the first two weeks of September.
Yields for 30-year government bonds in the United States dropped by 28 basis points through Monday. In Canada, they dropped by 22, by 14 in the U.K, by 8 in Germany and by 11 in France. Only Japan’s 30-year government bond increased, by 4 basis points.
Yields have been rising this year as global investors question the sustainability of higher government spending across the G-7 and the willingness of central banks like the Federal Reserve to keep inflation expectations in check as expansionary fiscal policies kick in.
Under such conditions, inflation rises and yields move higher as investors demand greater risk premia for purchasing government-issued debt.
Thirty-year interest rates have been recovering along with the economies in this post-pandemic era, reaching normal levels of return needed for long-term investments. But that comes with the cost of a bear market for bonds.
These economies are now facing a potential slowdown and the prospect of higher inflation should a shortage of goods or geopolitical upheaval occur.
All that will determine the appetite for investment and the appropriate level of long-term interest rates to finance that investment.
