The Iran war is driving up the price of oil and thus inflation. Yields on government bonds are therefore rising sharply on the financial markets. But why are the debts of Germany and the USA becoming more expensive - and what role do the central banks play in this?
Yields on government bonds are reaching historic highs on the financial markets - and unrest among investors is growing. The turbulence not only poses dangers for the stock markets, but also for the state - right down to individual citizens. The most important questions and answers.
What's going on in the bond market?
The consequences of the Iran war and the sharp rise in debt of many industrialized countries are becoming visible on the financial markets. The blockage of oil shipments from the Persian Gulf has pushed up oil prices, weakening the economy and fueling inflation. The prospect of higher inflation is putting central banks like the ECB under pressure. If inflation rises too much, they have to counteract it by raising interest rates. Speculation on rising key interest rates is causing yields on government bonds to rise.
Recently, the situation has worsened because investors are losing hope that oil deliveries through the Strait of Hormuz will return to normal. At an auction of US government bonds with a maturity of 30 years, yields were above five percent, the highest level in 25 years. “The yields on long-term US government bonds have now reached levels last seen before the global financial crisis,” writes Deutsche Bank fund subsidiary DWS.
Germany is not spared either: the yield on trend-setting ten-year federal bonds rose to 3.25 percent - the highest level in 15 years.
Is there a threat of a new debt crisis?
“So far, rising bond yields are not a sign of an imminent debt crisis,” says Eiko Sievert, who is responsible for ratings for the USA and the EU at the rating agency Scope. But they reflected growing investor concerns about high budget deficits.
At least in the USA the situation is tense. The financial policy under Donald Trump is increasingly seen as a risk on the stock markets, although not yet as a debt crisis. The American mountain of debt recently broke the $40 trillion mark - a 40 with twelve zeros. According to the Metzler Bank, the US Treasury Department has to spend around $100 billion per month on interest alone - and the trend is rising.
With the world's reserve currency, the dollar, the USA is still more resistant to a crisis than other countries. But if a debt crisis were to break out in America, the consequences on financial markets would be global and unlikely to spare Germany.
How does the USA react?
Most recently, the government has tried to push down the yield on U.S. Treasury bonds to make servicing the debt cheaper. With the announcement that it wanted to buy more of its own bonds in the future, the US Treasury was only able to temporarily lower yields slightly.
What is the situation in Germany and Europe?
Compared to the USA, the debt in Germany is significantly lower. The debt ratio, the debt ratio in relation to nominal gross domestic product, is around half at 63.5 percent.
Germany, the Netherlands and the Nordic states are still viewed as comparatively safe debtors, writes Sievert from Scope. "Countries with high levels of debt, such as Italy, as well as countries with high deficits and rising debt ratios, such as France, are being watched more closely."
But not everything is rosy in Germany either, because with billions spent on infrastructure and defense, the mountain of debt is also growing here.
What are the consequences for consumers?
With the turbulence in the bond market, the stock markets have come under pressure. The most recent record run has stopped for now. Savers who invest in the MSCI World stock index using index funds, for example, notice this in their portfolio. Conversely, gold investors benefit because investors seek security and the precious metal recovers after significant price losses. But the consequences are not limited to the stock market.
What do high bond yields mean for the German government?
If bond yields rise, taking on new debt becomes more expensive. Finance Minister Lars Klingbeil has to save now. The result was cuts in housing benefit and parental allowance, for example.
“We expect that bond yields for Germany, but also for other countries and issuers, will remain at a relatively high level in the long term,” writes Julian Zimmermann, analyst at Scope. As a result, the federal government's interest expenses are likely to increase and fewer funds are available for other projects. "This increases the pressure to consolidate government finances and reduce deficits in the long term."
Is Germany's top rating in danger?
According to economists, Germany's growing mountain of debt increases the risk that Germany's creditworthiness will decline. So far, the top rating AAA ("Triple A") has signaled to investors that there is a very low probability that German government bonds will default. If the rating agencies actually deprive Germany of its top rating, it would be more expensive for the state to raise fresh money from investors. With higher interest costs, less money could be available for investments and social benefits.
But it's not that far yet. All three US rating agencies S&P, Moody's and Fitch continue to rate Germany as "Triple A", as does the European agency Scope. Germany has significant fiscal buffers, says Zimmermann. Germany can continue to finance itself cheaply compared to most other countries.
