Higher-yielding foreign bonds increase competition for U.S. Treasurys
Rising yields on overseas sovereign bonds are pressuring U.S. Treasury rates, prompting a temporary Treasury buyback program and raising concerns about borrowing costs for consumers and the government.
U.S. Treasury yields have climbed as foreign sovereign bonds offer higher returns, with U.K. 30-year yields at 5.81% and German bonds at 3.76% compared with 5.27% for a similar U.S. issue. The shift is narrowing the traditional advantage of U.S. Treasurys, the world’s largest bond market valued at $31.5 trillion as of July.
Bloomberg Intelligence’s chief U.S. interest-rate strategist Ira Jersey said, >“Now the U.S. 30-year yield has to compete with all these other sovereign bonds. The U.S. is not the only game in town anymore.”
Higher Treasury yields have pushed the 10-year rate to about 4.74%, the highest level in more than a year, which in turn has lifted average 30-year mortgage rates. Treasury Secretary Scott Bessent announced a doubling of long-term Treasury buybacks to curb the 10-year yield, but the effect proved short-lived.
Macquarie Group’s global rates strategist Thierry Wizman warned that elevated mortgage rates could dampen home-buying, adding, >“The private sector wants to have the AI revolution. Who’s going to take a step back? It’s going to be the consumer. And higher yields are going to do that a little bit.”
Higher yields benefit savers through better returns on Treasury-linked accounts, while increasing borrowing costs for households and adding to the federal government’s interest outlays, which have reached $931 billion in the first ten months of the fiscal year. The growing debt burden, now over $40 trillion, continues to drive demand for higher yields to attract investors.