Tremors in the bond markets
investmentnews.comThe bond-market tremors came two weeks and two continents apart.
The first was in mid-June, when French President Emmanuel Macron’s decision to call a surprise election triggered a selloff amid fears a new government would ramp up spending. Then Treasury yields jumped after Donald Trump trounced Joe Biden in the presidential debate, fanning concern the US deficit will surge if the tax-cutting Republican returns to the White House — a trade that flared again early last week after the assassination attempt rallied supporters around his candidacy. Another twist came Sunday, when Biden announced he’s no longer seeking the Democratic Party’s nomination and endorsed Vice President Kamala Harris.
The moves drew little notice beyond financial circles, and they were soon overshadowed as speculation about coming interest-rate cuts moved back to center stage. But they amounted to early warning signs of the global risk posed by the combination of surging government debt loads and increasingly unpredictable election-year politics.
Even as the world’s economy expands at a solid pace, deficits have piled up thanks to heavy spending in the wake of the pandemic. As a result, the amount of government debt from major nations is seen swelling by $2 trillion this year to a record $56 trillion, according to the OECD. The debt loads are expected to keep edging up across the developed world — a trend the International Monetary Fund warned last week could be worsened if newly elected governments boost spending to support politically popular programs.
“Politicians will attempt to further delay the inevitable course correction,” said Christoph Rieger, the head of rates research at Commerzbank AG. “Some countries may test how far they can go
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