Higher Bond Yields Are Here to Stay in a Post-War World

Global bond yields are expected to remain elevated due to sustained higher government spending, according to a report by the Financial Times published on May 15, 2024. This trend is attributed to a shift in geopolitical landscapes, often described as a "post-war world," which necessitates increased defense budgets and public investment. Investors are factoring in these higher spending levels, which could lead to larger deficits and increased debt issuance, thereby pushing up the cost of borrowing for governments. The report cites historical parallels where periods of significant government expenditure, such as those following major conflicts, have been associated with persistently higher interest rates. This environment contrasts with the low-yield era experienced in the decades prior, influenced by factors like globalization and lower public spending. The sustained demand for capital from governments is projected to outpace the supply of savings, creating upward pressure on bond yields across major economies. This could have significant implications for corporate borrowing costs, mortgage rates, and overall economic growth, as higher financing costs can dampen investment and consumption.