8 ms·
Global bond yields hit 2008 highs, raising stakes for big borrowers
- skybrian 19d agoThey have different kinds of risk, but do AI investments and bonds compete for investors?
- huurtehoog 19d agoYes there's only so much credit on offer and the rising yields precisely when corporate debt is skyrocketing to finance massive data center expansion would indicate that that is indeed a factor. Op-eds claiming the opposite because "trust me bro" would also make me inclined towards the "data center build out for AI factors in for rising yields in sovereign debt"
- pydry 19d agoiirc data center construction investments are largely bond funded so this will absolutely fuck them.
- neilwilson 19d agoOnly in the secondary market. In the primary market they require different types of money for settlement. If you buy an AI issue, then the AI company has the bank deposit and the bank still has the matching reserves needed to buy government bonds in the primary market. All that changes is the ownership tag on the bank deposit.
- skybrian 19d agoBut looking one step back, the investor might need to sell something else to raise cash to buy the stock? I suppose in that respect, all investments compete.
- nostrademons 19d ago"Money flows through markets, not into markets." That said, there is a meaningful difference in terms of who has control of the money, and what they choose to do with it. Bank reserves are a red-herring; before the investor chose to buy either AI or government bonds with it, it was sitting in a bank deposit where the bank had parked it in short-term Treasuries. But prices are set on the margin (because again, money flows through markets, not into them), and so it is the act of that investor choosing to buy AI company bonds rather than government bonds that sets the relevant interest rates of both. A related confusion is that the bank reserves are parked in short-term T-bills, whose interest rate is largely controlled by the Fed, while the investments we're talking about are AI corporate bonds vs. long-term government bonds. These are three different asset classes that trade on three different markets with three different interest rates.
- tananaev 19d agoFinally some evidence that the system is working. Most countries are borrowing like there's no tomorrow, so obviously rates should go up to compensate the risk of not paying back.
- rob74 19d agoOne contributing factor might be that AI companies are raising money via (amongst other methods) also issuing bonds, which might compete with government bonds.
- AnimalMuppet 19d ago[dead]
- HappySweeney 19d agoIt isn't the debt levels that are causing the rates to spike, rather the start of the emerging Bretton Woods III era.
- AnimalMuppet 19d agoCould you be a bit more specific about what you think "Bretton Woods III" is?
- sph 19d agoNot sure what GP meant, but I found this googling that term: https://static.bullionstar.com/blogs/uploads/2022/03/Bretton-Woods-III-Zoltan-Pozsar.pdf https://static.bullionstar.com/blogs/uploads/2022/03/Bretton...
- HappySweeney 19d agoThis is indeed what I meant.
- glimshe 19d ago
- 2OEH8eoCRo0 19d ago"I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody." - James Carville
- pjc50 19d agoThe war(s), especially with the impact on pipelines and the Houthis taking over more of Yemen, are finally affecting fuel prices and hence turning the global economic outlook less positive. You can print money, but you can only ""print"" oil for a short time from reserves, which the US and China have been draining.
- danans 19d ago> You can print money, but you can only ""print"" oil for a short time from reserves, which the US and China have been draining. What's different between the two is that apparently China hasn't made an equivalent dent in its oil reserves, despite no significant reduction in travel, and despite reducing its import demand by 1 OPEC. It's not entirely clear how - but theories include shifts from flights to train travel and shifts from gasoline cars to EVs. Apparently the main reason they have started buying crude again is not for internal consumption as much as taking advantage of the massive crack spread in refined petroleum products (like diesel) which they export.
- ethagnawl 19d ago> It's not entirely clear how - but theories include shifts from flights to train travel and shifts from gasoline cars to EVs. From a distance, those look like pretty sound theories. It's wild that the pols and talking heads in the US have been screeching about how "dangerous" China is since the 90s (I remember family members making crude jokes about why I should be learning Mandarin instead of Spanish in middle school) and, yet, here we are doing everything we can to hand them the reins of world power.
- CursedSilicon 19d agoAs The Onion put it eons ago [1] "There's no shame in being second best!" [1] https://youtu.be/53tGLKlsQv8 https://youtu.be/53tGLKlsQv8
- pjc50 19d ago> China hasn't made an equivalent dent in its oil reserves I think the easiest explanation is that this probably isn't true. The US SPR is underground, it would be quite easy for China to manage its equivalent in secret, for whatever reasons. The Chinese EV shift is real and significant, though.
- rdm_blackhole 19d agoFrance is in a dire situation right now. 10y OAT are at 4.5% and rising with almost 100bps difference with Germany and no budget for 2027 since there is no majority in the parliament. There is also a 6% deficit expected and growth has been revised down to 0.4% although during the first 6 months of 2026 there was actually a decrease of 0.2% of GDP in total so finishing the year in recession is totally possible. Unemployment could also reach around 9% (15% in real terms if you count the people who have given up and/or been removed from the stats since they ran out of benefits). Finally gasoline could reach 3 euros/liter (USD $13 per gallon) before the end of the year (already sitting at 2.5 euros/liter in many parts of France right now).
- kingleopold 19d agomore social security will fix this I think? they need to spend 100Billion more on that so long term they can go into more debt. /s
- stymaar 19d agoAnd don't expect any debate on economic policy in the next presidential campaign either… It's just going to be “should we tax the billionaires” vs “should we save a few basis points of GDP in pensions”, none of which is remotely close to the order of magnitude that's needed to put the country back on its feet.
- dgellow 19d agoIt will be all about immigration and cost of life crisis. And of course the general finger pointing at the EU bogeyman
- stymaar 18d agoIndeed, and a bunch of culture war issues imported straight from the US by the people who pretends to care the most about French “identity”. But I was talking about the economy-related topics.
- rdm_blackhole 19d ago
- unddoch 19d agoIt becomes clearer to more people that it's impossible to predict the future shape of the global economy due to AI. The more clear it is, the cheaper 30 year bonds become.
- sekai 19d ago> It becomes clearer to more people that it's impossible to predict the future shape of the global economy due to AI. You mean due to Trump? Tariffs and Iran war caused this.
- unddoch 19d agoYour local American tariffs can hardly explain a global rise in long term yields. The Iran war isn't going great economically but doesn't explain thks. If anything the Russia-Ukraine war has had a bigger influence.
- jeffbee 19d ago[flagged]
- dgellow 19d agoAI isn’t even remotely the issue here, it’s Trump war and other insane behaviors
- throw0101c 19d agoItalian and Greek bonds now have lower yields/rates (i.e., considered lower risk(?)) than US bonds: * https://www.investing.com/rates-bonds/ https://www.investing.com/rates-bonds/
- Cruncharoo 19d agoSort of. You also have to consider exchange rate futures, the value of the currency you will be getting paid in may change dramatically.
- seanmcdirmid 19d agoIs the euro doing or expected to do something strange?
- wongarsu 19d agoMaybe the USD is expected to lose value against the euro?
- Cruncharoo 19d agoNot sure, not my domain. My comment was just highlighting that comparing the yields on two sovereign bonds with the same maturity doesn’t necessarily mean one is riskier than the other, there are other factors.
- seanmcdirmid 19d agoThe main complaint from Greece and Italy has been that Germany (and maybe even France) demanded (and got) strong monetary discipline for the Euro, so I'm pretty sure that the Euro itself isn't going to affect their debt much.
- tokai 19d agoEurobonds being discussed again maybe?
- zaik 19d ago
- 32oqa9 19d agoThe US will continue to starve the world of oil and natural gas as long as the stock market goes up. Notice that the stock market is at all time highs because 50% of the economy is grift now and not real. That is why Republicans go into vast deficit spending to pump up AI and worthless "high-tech", "disruptive" defense stocks. Trump (and British pound saboteur Bessent) don't care one bit if the US plebs and the rest of the world suffer. The game is printing money, give it to grift companies like AI, have family invest early and get out if everything collapses. Probably they get into real estate cheaply due to foreclosures.
- podocarp 19d agoTurns out countries with constitutions forbidding excessive debt are quite smart. It's like phone addiction -- if the parents don't lead by example and strictly enforce "no phones at the dinner table" then slowly it's just gonna creep back in and everyone's just staring at their phones again.
- Synthetic7346 19d agoNot working so well for Germany https://youtu.be/ajH6YVhdOZU?is=Xht8Qsd_eGqnS7wW https://youtu.be/ajH6YVhdOZU?is=Xht8Qsd_eGqnS7wW
- wongarsu 19d agoIn the short term it will always look stupid. Borrowing allows you to invest, which leads to growth, which allows you to borrow more. But debt also accumulates, and usually faster than GDP growth. Until debt servicing starts eating your budget. Which is a slowly encroaching killer I find it difficult to draw conclusions just yet. Yes, Germany is under-investing and that hurts. But with another 20 years of hindsight it might look like the lesser evil
- gradus_ad 19d agoDebt is easy to deal with for a sovereign. Just dilute the currency. That will obviously happen before a debt crisis is allowed to materialize. And so the rich will get richer. The real problem is not the debt, but the social instability caused by the measures taken to address the debt.
- wongarsu 19d agoThis would also make countries that constituionally prevent that level of debt look smart. At least if we see the state as an institution that should serve its citizens. If taking on debt requires making your citizens worse off to the point that it causes social instability that didn't serve them very well If you see the state as an institution to allow the rich and powerful to extract resources from the rest of the population, then it's all fine. Just take out some debt to give a contract to your nephew, then pay it back by devaluing the currency
- eggplantemoji69 19d agoCurious to see what transpires with federal fund rate alteration in the acute future. Both Warsh and Bessent are pupils of Druckenmiller, but Warsh seems aligned with Druckenmiller regarding letting the market naturally settle on appropriate bond yields, whereas Bessent is being a Trump puppet and attempting these various failed interventions to artificially lower yields. I hope Warsh stays strong and doesn’t bend the knee!
- haizhung 19d agoIMHO this is an effect of the exponentially increasing wealth inequality. We are allowing a tiny elite to hold a larger and larger fraction of the overall wealth, while workers, middle class AND the government are losing more and more of the wealth. Governments, until now, are refusing to tax the uberrich, and continue to squeeze out workers and middle class in an attempt to stop the bleeding. Since this is bound to not work (workers and middle class are rapidly losing their share as well); governments are forced to scrap public services like health care, housing, schools, etc. Bond markets are now realizing that the governments are not taxing the only fraction of society who owns everything - and so it makes sense that the bond markets become increasingly worried that governments can pay their interest at all. Tax the rich.
- rileymat2 19d agoI don't understand how this is a wealth inequality issue, excess capital should cause bond prices to go down not up, as more wealthy are competing for more investments driving bond yields down.
- haizhung 18d agoReturn of your capital is not important than return on your capital; and if you as a bond buyer are worried that the government can’t pay back your loan at all, you will increase the interest rate on it.