Government borrowing costs rise anew, adding to pressure on global policymakers
www.reuters.com

... A selloff in global bond markets deepened on Tuesday, reflecting investor angst over inflation and government debt levels that stand to inflict fresh pain on consumers and businesses.

Japan's 10-year yield hit 3% for the first time since 1996 as the rout hit bond prices, driving up yields, in major economies around the globe. Yields hit their highest in 15 years in Germany and their highest since 2008 in the UK. In the U.S., the 10-year yield rose 3.8 basis points to 4.796%, putting it in range of its highest level since 2023.

Some of the world's leading economies, notably the U.S., have sharply increased their debt loads in recent years through deficit spending, with the U.S. debt hitting $40 trillion -- a shift investors warn is likely structural rather than episodic and will be difficult to remedy without tough choices at the national level. Meanwhile wars from Russia-Ukraine to the Middle East have sent oil and gas prices higher, adding to pressure on interest rates and the cost of living.

"This is likely primarily a U.S.-specific story, though global currents are amplifying it," said David Krakauer, vice president of portfolio management at Mercer Advisors.

"The core drivers are largely domestic: deficit spending, the cost of servicing a rising debt load, and shifting Treasury auction dynamics," in which price-sensitive buyers such as hedge funds and other private firms have in part supplanted price-insensitive official buyers such as central banks.

Governments are jittery. The U.S. Treasury stepped into markets last month in a bid to cap a rise in borrowing costs, which can spill over to higher loan rates for everything from household mortgages to business loans. Yields on 30-year Treasuries are close to the highest in 19 years. ...

World's unusually high U.S. dollar exposure risks fuelling selloff
financialpost.com

... Sift through the filings of pension funds and insurers around the world and one thing stands out: some of the biggest holders of United States assets have little protection against a weaker dollar, leaving the currency at risk of steeper declines if sentiment suddenly turns.

Across markets including Japan, Canada and Taiwan, these investors hedged just 41 per cent of their foreign-currency exposure as of June 30 " the lowest since at least 2015 " according to Bloomberg calculations using data from six markets where such figures are available. While not a complete picture, it offers a glimpse into how the sudden rush last year to hedge against dollar losses triggered by President Donald Trump's global tariff rollout has faded as the U.S. currency slowly stabilized.

In cutting back their hedges, investors are returning to an approach that had worked for much of the past decade. The dollar tended to rise, or at least hold up, when markets turned volatile, cushioning losses on U.S. stocks and bonds when they're converted back into investors' home currencies. And with hedging expensive, there was little incentive to pay for protection.

The risk now is that two pillars underpinning that strategy " high hedging costs and the dollar's haven status " are being challenged at the same time.

The greenback is down about 2.3 per cent this quarter and has weakened against most G10 peers as investors revive the debasement trade, the view that U.S. policies will erode the currency's value. Treasury Secretary Scott Bessent's moves to support the yen and contain rising U.S. yields have fuelled those concerns, as have doubts over whether Federal Reserve Chair Kevin Warsh will raise rates to curb inflation amid Trump's push for lower borrowing costs. ...