THE 5% WORLD
Governments Can Still Borrow Almost Unlimited Amounts of Money. They Just Can’t Control the Price Anymore.
For almost fifteen years, governments in advanced economies learned a very dangerous lesson.
Debt was cheap.
Sometimes extraordinarily cheap.
Central banks bought sovereign bonds by the trillions. Interest rates hovered around zero. In parts of Europe and Japan, governments could actually borrow at negative yields. Fiscal expansion became easier to justify because the apparent cost of carrying additional debt seemed almost trivial.
That world is disappearing.
Not because investors have suddenly stopped buying government bonds.
Quite the opposite.
They are still buying them.
They simply want to be paid much more for doing so.
And that distinction may define the next phase of the global debt problem.
The United States is approaching a 5% 10-year Treasury yield. Britain is already above 5% across important parts of its curve. Japan’s 10-year government bond has touched 3% for the first time in three decades. Meanwhile, governments and corporations are expected to raise an extraordinary $29 trillion from bond markets in 2026.
The bond market is not broken.
It may be working perfectly.
And that could be the problem.
1. Britain: almost 6% — and investors are still lining up
The United Kingdom offers perhaps the cleanest demonstration of the new regime.
On September 10, the British 30-year gilt yield reached 5.925%, its highest level since 1998.
The 20-year reached 5.890%.
The 10-year gilt climbed to 5.348%, a level last seen in 2007.
These are extraordinary borrowing costs for a developed sovereign that issues debt in its own currency.
But something even more interesting is happening.