Why you should care about US bond yields

**Carrington Clarke** (0:00)
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**Carrington Clarke** (0:36)
So the question, dear listeners, is this red lights flashing? The yield on a 30-year US Treasury bond is now the highest it's been in nearly two decades. So why are investors demanding a higher return in exchange for lending money to the US government? And why should Australians be paying attention? And as Australian property prices fall, what can we learn from our Commonwealth cousins, New Zealand and Canada, about property bubbles and the risks of it popping? Welcome to ABC Business Daily.
I'm Carrington Clarke.

**Ian Verrender** (1:12)
And I'm Ian Verrender, the ABC's Chief Business Correspondent.

**Carrington Clarke** (1:15)
Ian, thank you so much for joining me. Let's start with what's happening with US Treasury bonds. Now, the 30-year Treasury bond is kind of seen as the gold standard when it comes to risk-free investing. And we've now seen it hit a 19-year high. So this means that the cost of borrowing for the US government has gone up, but it also means that the cost of borrowing is going up across the board, right? And so how concerning is this when you look at it? It's been steadily growing over recent years, but obviously pushing up to a level of 2007, I think, starts to concern people.
Should we be really worried about this, or is this just markets pricing at a time when you've got, for example, artificial intelligence companies asking for a whole bunch of money to fuel their investment? Is that what's going on, or is it concerns about inflation and about the huge amount of debt that the American government is now carrying?

**Ian Verrender** (2:07)
That's the primary problem, the US government debt, and that's what people are focused on. And it's not just us talking in a room in the middle of Sydney, it's a global phenomenon where people are really quite concerned about what is happening with the US government debt and the amount of money that it's spending, the deficits it's racking up, and I guess the seemingly endless road towards greater debt. There doesn't seem to be any kind of plan to rein it into the future. Now, when Donald Trump first, well, when he became president in late 24, early 25, there was a lot of talk about the US government debt back then. It was around about $32 to $33 trillion, US dollars, and there was a lot of concern about that. Well, it's just gone to $39.1 trillion.
We've got a huge amount of spending going on in the Middle East over this war. And of course, Pete Hegseth, the Defense Department Secretary and the President have both basically fronted up to Congress demanding more money for defense. So there seems to be no end in sight to try and solve this problem. And when you have debt blowing out to this kind of extent, how do you fund it? And this is no ordinary country. America is the, well, the US dollar is the global reserve currency. It is the bedrock for the global financial system. And so if you've got a massive blowout in debt with no obvious plan on how to repay it, it is a problem. Put this into a bit of perspective as well.
The interest bill on that debt is now just shy of a trillion dollars a year. And that means it's become the third largest component in spending. So the debt is starting to snowball and actually take over the government's finances in itself. And this is what is concerning everybody.

**Carrington Clarke** (3:56)
So we talk about US Treasury bonds as being effectively a risk-free asset. Because the concept is the American government is never going to go bankrupt, it's never going to not repay its debt.

**Ian Verrender** (4:08)
That's right.

**Carrington Clarke** (4:09)
Do you think people are starting to question that basic understanding or is the fact that the US dollar is still the backbone of the global economy mean that it would be impossible for the US government to do as other governments have done, which is effectively say, actually we can't repay the debt that we owe to people we're borrowed from.

**Ian Verrender** (4:26)
For as long as everybody believes that it can continue on, the financial alchemy that exists around all this remains in place. But as soon as the doubts start to grow to a point where people are going, how do you finance this? How do you repay it? This doesn't seem to be a way out. Sometimes those moments come very quickly and very suddenly and causes a crisis, which we saw back in the global financial crisis.