Bond Vigilantes are Global

 

If the bond vigilantes are back, it is not just in the US. Rates in other G7 countries have been rising, and the US is not the only one. Global bond markets are repricing risk, and there seems to be a common concern about government budget deficits. The problem is that government deficits are high and generally getting higher. The exception is Japan. The problem is that deficits continue to rise because interest rates are also rising, so financing costs strongly drag on any improvement in the budget deficit.

One key reason the US wants to lower interest rates amid persistent inflation is that rising financing costs limit room for further spending increases without larger deficits or higher taxes.  

The bond investors are fully aware of the budget math and they want to be compensated for the added financing risk.