Forever, it turns out, was temporary. For much of the 2010s, economists were worried that interest rates would remain near zero indefinitely, held down by too much saving and too little investment. All of a sudden, the reverse is true. Borrowing costs are leaping across the rich world and governments are starting to sweat.
On October 5, the yield on America’s 10-year bonds topped 5.3 per cent, its highest in more than 20 years. Even in Japan, long a byword for near-zero rates, the 10-year yield has climbed above 3 per cent for the first time since 1996.
The median 10-year government bond in the rich world now yields 4 per cent, the highest in more than 15 years and over 2.5 percentage points above the average in 2015-19. A new interest rate regime is taking shape.
The sell-off in government bonds – yields rise when prices fall – has gathered pace in recent months. Since the end of June, French 10-year yields have risen by about 1.3 percentage points and Italian ones by a percentage point.
These higher borrowing costs are colliding with near-record levels of debt in the rich world. The more governments owe, the harder higher rates bite.