Government borrowing costs soar as inflation fears push up global bond yields

Government borrowing costs soared around the world yesterday as mounting concerns over the global economy wreaked havoc on the bond markets.

As investors fretted over persistent inflation and ‘higher for longer’ interest rates, bond yields rose in the United States, Britain and across Europe.

That threatens to push up borrowing costs for households and businesses – further denting the economy.

The yield on ten-year US treasuries hit 4.688 per cent – its highest level since 2007 – while the yield on ten-year German bunds rose to a 12-year high of 2.98 per cent. French bond yields were also at a 12-year high while Italian yields rose to levels not seen for a decade.

UK ten-year gilt yields hovered around 4.5 per cent, though this was below the 15-year high of over 4.7 per cent reached last month.

Borrowing costs have been rising in recent days on warnings that the US Federal Reserve may need to raise interest rates once again to control inflation.

And while inflation has eased across the West in recent months, the rising oil price has sparked fears the battle is far from over.

Oil hit a fresh ten-month high above $97 a barrel yesterday with many analysts now expecting it to top $100 once again.

‘A wall of worry is hitting the bond market, and the latest trigger is the oil price,’ said Jim Leaviss, a fund manager at M&G Investments. He said the rise in the price of crude was leading investors to wonder: ‘What if inflation is not dead?’