What To Know
- In May, Moody’s downgraded the US credit rating from AAA to Aa1, marking the first time in decades the nation lost its top-tier status.
- The downgrade reflects mounting fiscal risks as federal debt, already at 98% of GDP in 2024, is projected to climb to 134% by 2035.
International Business News: Rising concerns as yields surge worldwide
The global bond market is teetering under immense pressure as government debts soar and yields climb across major economies. Bond yields, a crucial economic barometer, have been rising steadily, raising alarm bells for investors and policymakers alike. According to recent analysis, nations like the United States, France, the United Kingdom, and Japan are facing record levels of debt, sparking concerns over how long governments can sustain ballooning obligations. This International Business News report highlights how the financial system is increasingly strained, with higher borrowing costs threatening to choke investment and slow growth worldwide.
Soaring global debt and surging bond yields ignite fears of financial turbulence ahead
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US downgrade adds to global instability
In May, Moody’s downgraded the US credit rating from AAA to Aa1, marking the first time in decades the nation lost its top-tier status. The downgrade reflects mounting fiscal risks as federal debt, already at 98% of GDP in 2024, is projected to climb to 134% by 2035. Meanwhile, deficits are widening from 6.4% to nearly 9% over the same period. Bond yields are reacting sharply, with the 30-year Treasury now around 5% compared to 4% in early 2024. This rise in yields makes it more expensive for both the government and private sector to borrow, potentially stalling investment and economic expansion.
Europe and Japan add fuel to the fire
The crisis is not confined to America. France’s debt has reached 114% of GDP, with its long-term rating cut by Fitch to A+. The UK, struggling with record borrowing costs and inflation, now has public debt equal to 97% of GDP. Japan remains the outlier with debt exceeding 255% of GDP, a figure unmatched by any other major economy. Such extreme levels are raising concerns that rising interest rates could destabilize global markets further, particularly given the interconnected nature of G7 bond markets.
Impact on emerging economies
The Institute of International Finance warns that emerging and developing markets are being squeezed as capital increasingly flows into advanced economies’ bond markets. With over 60% of global investments concentrated in the US and Europe, less than 7% trickles into emerging markets, leaving them with limited capital access and growing financial vulnerabilities.
Financial leaders sound the alarm
Wall Street heavyweights are voicing concern. JPMorgan’s Jamie Dimon has warned of a potential US bond market collapse if fiscal discipline is not restored. Goldman Sachs president John Waldron called the widening US deficit “deeply troubling,” while hedge fund veteran Ray Dalio suggested that America must cut its deficit from 6% to 3% of GDP to avoid spiraling risk. However, President Trump’s new budget proposal, favoring tax cuts over austerity, suggests the opposite may occur, compounding fears of prolonged instability.
The global economy now stands at a crossroads, with rising debts, political inaction, and investor anxiety creating a volatile mix. If unchecked, this environment could erode confidence in sovereign bonds and destabilize both advanced and developing markets alike, triggering ripple effects across industries and households worldwide.
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