Long-term interest rates are, by definition, an indicator of the market’s view of an economy’s prospects, not least its vulnerability to inflation. So it is not a good sign that the yields on 30-year Treasuries continue to rise, reaching 5.22 percent in Thursday’s auction, the highest since 2001. The $25 billion auction was easily covered but, as was noted in the Financial Times, the price had to be right. Investors are fretting about two interlinked concerns: inflation, and the growing size of the government’s debt. And the higher rates rise, the greater the debt problem becomes.
Meanwhile, the dollar (as measured by the DXY index) has given up its Iran war-related safe haven gains. However gold, battered by the retreat of speculative buyers earlier this year, is still well off its 2026 peak (around $5,300), but is now moving up again, almost reaching $4,400, a decent recovery after falling below $4,000 in mid-July. Another safe haven, the Swiss Franc, has been unusually weak against the dollar, almost certainly because Swiss government bonds are yielding close to zero the whole way across the curve, a demonstration of a different form of strength. Swiss inflation is running at an annual rate of 0.5 percent. The country’s federal debt/GDP ratio was around 16 percent at the end of last year. Throw in the cantons, and the ratio of total government debt to GDP is somewhere in the 30s. A different world.