There is a better plan for the rapid rise in bond yields around the world, none more so than in Asia, than meets the eye. It suggests recognition by financial markets that governments are spending more than they can, tax revenues and borrowing capacity.
This means that taxes need to increase or public spending needs to decrease, or else that financial markets, especially stock markets, must shift their priorities from attractive stocks in the technology and artificial intelligence (AI) sectors to investments in more basic public goods.
That, reflects the coming correction in high-value stocks towards less attractive sectors such as energy, infrastructure and health – seemingly pedestrian yet important. In any case, recent developments suggest the need to reorient investment priorities.
These things they are not visible has been fully embraced yet by stock investors, given that stock valuations continue to rise, especially in Japan where the Nikkei index has broken another record by jumping above 65,000 points.
A recent briefing by the International Monetary Fund in Tokyo heard the opinion of financial experts that AI stocks were above “fair value” and that investors considered only a few sectors had reached risky and unsustainable levels. It’s still inside securities markets that to change the mood is to give clearer warnings. Yields on government and other bonds rise sharply as bond prices fall – these developments are less commented on than earlier ones.
Sovereign yields are rising rapidly almost around the world – particularly in the US, UK and Australia among the advanced economies and also across Asia from India to Indonesia – as government debt levels reach or come close. high records. The process becomes self-feeding because as yields and debt service costs rise, so does the demand for new borrowing.
