OECD sounds alarm on surging government bond yields

{"text":[[{"start":8.1,"text":"Surging government bond yields are a “major concern” to countries’ public finances given the mounting share of spending being consumed by debt interest, the OECD said on Wednesday, as it urged nations to rein in expenditure."}],[{"start":20.7,"text":"Stefano Scarpetta, OECD chief economist, said one of the reasons for rising government borrowing costs was concern about the sustainability of public finances, with the Paris-based forecaster warning of “increasingly pressing fiscal challenges” affecting many of its members."}],[{"start":36.58,"text":"In its interim economic outlook, the OECD highlighted a growing number of fiscal interventions by governments aimed at curbing the cost of energy for consumers and businesses, but only half of the measures were being properly targeted, and this was adding to the pressures on public finances."}],[{"start":null,"text":"

"}],[{"start":52.8,"text":"The average 10-year benchmark bond yield of G7 countries has hit 4 per cent this year for the first time since 2008. The US war with Iran and ensuing surge in energy prices has fuelled a bond sell-off that reflects investor concerns about rising inflation."}],[{"start":69.1,"text":"The combination of higher borrowing costs and record bond issuance by governments across the rich world has propelled a rise in debt-servicing costs that is worrying policymakers."}],[{"start":78.18,"text":"“The increase in bond yields is a major concern,” Scarpetta said in an interview with the FT."}],[{"start":84.42,"text":"He added debt-to-GDP ratios had been increasing “like a staircase” since the financial crisis as successive shocks have hit the global economy. “The debt servicing cost will increase at a time when debt-to-GDP ratios are at very high levels.”"}],[{"start":99.02,"text":"In its interim economic outlook, the OECD said “stronger efforts” will be needed by governments to “contain and reallocate” spending, as well as improved public-sector efficiency, so as to ensure “longer-term debt sustainability” and allow policymakers to respond to future shocks."}],[{"start":115.5,"text":"Across the OECD, debt interest costs topped $2tn, or 3 per cent of GDP, last year, and are expected to increase further. In France, the interest bill is expected to rise by a quarter this year, and it already exceeds defence spending in a string of countries."}],[{"start":null,"text":""}],[{"start":131.86,"text":"Amid the high borrowing costs, countries are increasingly relying on short-term bonds, which typically carry lower yields compared to long-term debt."}],[{"start":139.811,"text":"The US is expected to issue as much as $1tn of short-term Treasury bills — borrowings which mature in 12 months or less — in the coming year, excluding money raised to pay off redeeming debt."}],[{"start":151.74,"text":"But this increases the sensitivity of debt costs to rising interest rates, as high market yields pass more quickly into the interest bill."}],[{"start":159.42,"text":"One route out of the debt squeeze is higher growth. The OECD said AI-related investment and trade is currently helping global growth weather the Gulf oil shock better than expected."}],[{"start":169.7,"text":"The organisation added that G20 economies will expand by 3.1 per cent this year, 0.1 percentage points more than it forecast in June. The expansion should continue at a similar pace of 3 per cent in 2027, it added."}],[{"start":184.54,"text":"Rising GDP will be led by stronger than expected growth in the US, where the economy is set to expand by 2.2 per cent this year and 2.1 per cent in 2027, boosted by the data centre construction boom."}],[{"start":197.62,"text":"The OECD said GDP growth in nations including China, South Korea and Japan is being propelled by technology exports, with the global economy also cushioned by robust oil inventories."}],[{"start":null,"text":""}],[{"start":208.86,"text":"However, many analysts warn of a rising toll on global output with Brent crude oil hovering near $100 a barrel and no end in sight to the hostilities between the US and Iran."}],[{"start":219.94,"text":"Inflation in G20 countries is set to rise to 4.1 per cent in 2026, up from 3.4 per cent last year, according to OECD forecasts."}],[{"start":229.44,"text":"It predicts price growth of 3.6 per cent in 2027 — an increase of 0.5 percentage points compared with its prior forecast."}],[{"start":237.66,"text":"More than half of G20 countries currently have inflation that is above their central banks’ target, the organisation added."}],[{"start":238.16,"text":"Data visualisation by Maxine Kelly"}],[{"start":249.66,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1790164721_9697.mp3"}