Bond markets face pressure as structural forces push interest rates higher
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- 2 min read
Persistent inflation is raising concerns that interest rates could remain high for longer, putting pressure on borrowers, property prices and share markets.
Australia’s 10-year government bond yield is near its highest level in 15 years. US 10-year bond yields have also reached their highest point since the global financial crisis.
Bond yields rise when investors demand greater returns for lending money. Falling bond prices and rising yields can increase borrowing costs across the economy.
Economist Satyajit Das has described the US economy as a major pressure point for global bond markets. Investors are becoming more cautious about lending to heavily indebted governments.
The Reserve Bank of Australia reduced its US dollar reserves by 10 per cent in 2025, taking holdings back to levels last seen in 2012. Other countries, including China, Brazil, India and Japan, have also reduced their exposure to US government debt.
The Netherlands has moved significant quantities of gold out of the US and Canada, citing the need to strengthen its financial preparedness amid geopolitical tensions. Norway’s sovereign wealth fund is also considering reducing its holdings of US Treasuries.
The pressure has been intensified by rising oil prices following the escalation of conflict involving Iran. Higher energy costs could make inflation harder to control.
AMP chief economist Shane Oliver said efforts by the US Treasury to support the bond market would provide only temporary relief unless the country improves its budget position.
Another factor is the enormous investment in artificial intelligence. Major technology companies are borrowing heavily to fund data centres and other infrastructure, increasing competition with governments for available credit.
Commonwealth Bank markets strategist Adam Donaldson said major spending on AI, defence, infrastructure and the transition to a low-carbon economy was pushing long-term interest rates higher.
He warned that markets were signalling higher average cash rates over time. This could increase pressure on Australian mortgage borrowers, as variable home loan rates are closely influenced by the Reserve Bank’s cash rate.
Donaldson also raised concerns about confidence in the US Federal Reserve. If investors begin to question the central bank’s independence or credibility, bond prices could fall further and interest rates could rise again.
Stay tuned with Aus News Lanka – the leading platform for news for Australians.
Source : ABC News
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