Source: Fortune.com
Summary
Bonds sold off sharply worldwide as investors prepare for persistently high inflation amid the ongoing energy crisis. Oil prices jumped after the U.S.-China summit ended without signs that Beijing will pressure ally Iran to reopen the Strait of Hormuz. Recent U.S. debt auctions showed weak demand for longer-term Treasuries, leading to higher yields. The Treasury Department expects to borrow more than anticipated this quarter due to softer cash flow. Federal Reserve policymakers are less inclined to ignore short-term price spikes, with Boston Fed President Susan Collins suggesting possible policy tightening.
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The numbers tell one story.
The Treasury Department sold $25 billion of 30-year bonds at a 5% yield for the first time since 2007. In March, auctions for two-, five- and seven-year Treasury notes saw weak demand, forcing yields to go higher than expected. Higher yields boost interest costs, which are running at $1 trillion a year. The federal government has to issue trillions of dollars of fresh debt each year to cover the deficit.
Treasury Secretary Scott Bessent believes the current energy shock will be a momentary blip, but bond investors disagree, with U.S., German, Japanese, and U.K. yields all soaring on Friday. The announcement sounds familiar: central bankers must demonstrate more resolve to rein in inflation.
Author: Evan Null
