Rising long-term yields around the world
... show that the basic laws of macroeconomics still apply: Higher risks result in higher rates.
As rich countries grow older, they are spending like crazy, and they have no earthly way of paying for all their debt. So it stands to reason that rates will go up eventually.
And yet for most of the last 20 years, rates didn’t go up — they went down.
This so defied the basic laws of economics that some economists said they no longer applied — and then policy makers believed them, and spent even more.
Rates have finally gone up in the last few years. Now the 30-year bond yield is rising in almost every rich country
Most of the action is on the 30-year bond, which some see as a reassuring sign that a crisis is not imminent.
Longer-term rates are a function of what markets expect future short-term rates to be.
That they are rising despite rate cuts from central banks means that the risk outlook is worse.
The last few decades of low rates lulled investors, companies and governments into believing that they could keep borrowing and not face any costs — that they could essentially live in a world without economic trade-offs.
Higher rates mark the end of this era of magical thinking.
Allison Schrager Bloomberg September 3, 2025
magical thinking
What’s striking about this new supply-side revolution is its underlying assumption that economic choices come without trade-offs—that they represent a free lunch.
This idea has become more prevalent in both the public and private sectors, fueled by the near-zero interest-rate environment that prevailed
for much of the period beginning with the financial crisis in 2008 and ending only in 2021, when inflation began to spike.
Cheap money enabled the illusion that budgetary limitations were gone, that opportunity costs no longer mattered, and that any initiative that grew the economy would pay for itself.
Lately, though, dissenters have challenged these basic realities, even in the economics profession.
Modern Monetary Theory contends that government needn’t worry about debt or resource scarcity because resources aren’t so scarce after all.
Though mainstream economists reject this approach for its denial of fundamental principles, MMT got buy-in from politicians and the media, among whom trade-off denialism is most prevalent.
https://www.city-journal.org/article/supply-side-economics-trade-offs-government-spending-debt
Interest rates are still low by historical standards, despite America’s huge debt.
Why aren’t bond markets sounding the alarm?
It’s a question people have been asking for more than 20 years now. No wonder so many economists and politicians convinced themselves that debt doesn’t matter.
https://englundmacro.blogspot.com/2025/07/america-irresponsible-national-debt.html
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