Rising global bond yields will put pressure on U.S. interest rates, too

Bond buyers around the world have been demanding higher interest rates. Put another way: The price of bonds worldwide has been cratering. And when global bond markets are screaming bloody murder, it’s important to to listen — yes, I'm talking to you, American consumer!

As interest rates rise around the world, they will rise here in the U.S., too. And right now, bond buyers around the world are demanding some of the highest rates in a generation.

Take Germany as an example: Yields on its 10-year government bonds are at their highest since 2011. Ken Rogoff, an economics professor at Harvard University, said a lot of that is down to government spending.

“In the particular case of Germany, they were not a high debt country, and suddenly they’re really nervous about Russia. They’re having to increase military spending,” he said.

More spending means more debt. And because of that, the bond market is demanding higher interest.

But it’s not just in Germany. Ten-year bond yields in Japan are at their highest level since the late ‘90s.

“The Japanese government needs to compete for funds against everybody else. Countries are not islands, even the United States,” Rogoff said.

And yields on U.S. Treasurys are already pretty high, which is adding to the competitive global pressure, said Henry Wu, co-head of U.S. bond strategy at Alpine Macro.

“So when you see yields going up in the U.S., and that’s the biggest bond market in the world, yields in the rest of the developed world follow it,” he said.

There’s also a feedback loop here: When yields in the rest of the world go up, that puts pressure on the U.S. Treasury to pay higher rates.

Anna Cieslak, finance professor at Duke University, said there’s a lot of competition around the world for investors’ money. Governments and companies are issuing a boatload of bonds to cover budget deficits and pay for artificial intelligence data centers, and investors need to be persuaded to keep buying them.

“Suppose that everybody has already eaten so much candy that they cannot take anymore. It’ll take a bigger effort to induce them to buy one more candy,” Cieslak said.

That bigger effort, in this case, is higher interest rates.