US borrowing costs rise as attempts to ease rates prove short-lived

Here is a story making headlines in the economy: US borrowing costs rise as attempts to ease rates prove short-livedImage source, Getty ImagesByMichael RaceBusiness reporter, Reporting fromNew YorkPublished7 hours agoLong-term borrowing costs in the US rose again despite an announcement from the government that it would intervene to try to lower them. Earlier this week, the Treasury Department said it would buy back more debt in a bid to lower rates being charged by investors on global bond markets, which governments and major corporations rely on to borrow money. While rates - or yields as they are called - eased on borrowing over 30 years following the intervention, they have since risen again.

Such moves can affect mortgage rates and car loans. Economists said the surprise move by the US government had proved short-lived, with ongoing concerns over the level of borrowing as national debt passed $40tn. On Friday, the interest rate on 30-year bonds had risen to around 5.

Economic Details

Governments and corporations sell bonds - essentially an IOU - to raise money for spending, and in return they pay interest. Interest rates on bonds are known as yields. Bond investors typically demand higher returns - or yields - if inflation is high or they expect it to be elevated in the future.

Yields had fallen sharply earlier this week to 5. 18% from an almost two-decade high of 5. 34% following the Treasury Department announcing its "support".

By stepping in to buy back government debt, Treasury Secretary Scott Bessent aimed to boost demand for bonds and lower borrowing rates. But the strategy has appeared to have only worked in the short-term. John Canavan, lead analyst at Oxford Economics said the response to the government's intervention was "unsurprisingly short-lived".

Analyst Views

He said traders were focused on the "daunting" amounts of global borrowing from governments and corporations, as well as increases in oil prices. "As Bessent himself confirmed, the move is mainly a signalling mechanism, with the Treasury showing it is prepared to step in with yields near current levels," said economists at Capital Economics. "It is not necessarily an effective one, however, as much of the initial fall in 30-year yields has now been reversed.

"The has contacted the Treasury Department for comment on the market reaction. Bessent sought to blame the Biden administration for the current situation, telling US media on Thursday: "We did not get here in a day, we were left with a mess. "Why the US economy is ringing alarm bells Published15 hours agoUS national debt passes $40tn after doubling in a decade Published1 day agoGlobal borrowing costs have spiked in recent months due to higher oil prices caused by the US-Iran war disrupting supplies and stoking fears of inflation.

Large amounts of cash being borrowed by tech firms to develop Artificial Intelligence (AI), with the timeline and level of returns on investment uncertain, and tax revenues being outstripped by public spending have also contributed to higher yields.

Financial markets are tracking the development closely as investors assess the likely impact.