Sam Goldfarb and Peter Santilli:
Recent strains in the global bond market are demonstrating a key problem confronting G-7 leaders at their meeting in Paris this week: how to manage a growing pile of government debt, accelerated by war and the pandemic.
Tumbling bond prices have pushed yields on government debt higher, lifting borrowing costs for governments, businesses and consumers alike. The main driver has been the war-fueled surge in energy prices, which has lifted inflation and spurred talk of possible interest-rate increases by central banks. But concerns about the fiscal outlook in Japan and the U.K. have also added to the bond-market selloff in recent days.
In the U.S., federal debt held by the public just climbed above 100% of the country’s gross domestic product for the first time since the aftermath of World War II. Yet the country still has advantages that have blunted the impact of that milestone.
Here is a look at the current complex relationship between government finances and the bond market: