Bond markets have entered a new era of hostility with governments, fund managers say, as investors sell sovereign debt in large economies such as the United Kingdom, France and the United States amid a deluge of borrowing.

The UK’s massive borrowing budget in October sparked a sell-off in the government bond market, pushing 10-year bond yields to their highest levels. Highest level since 2008 And interest costs for a maximum of 30 years in this century.

The political crisis in France has caused its borrowing costs to be higher than those of Greece, while it struggles to approve a budget for austerity measures. In the United States, the Treasury market was hurt by fears that President-elect Donald Trump will borrow freely and cut taxes.

These movements are being led by government bond investors who have once again taken on the role of enforcers of fiscal discipline, demanding higher returns when government finances deteriorate.

“There is a pickup in bond market activity,” said Robert Dishner, senior portfolio manager at Neuberger Berman.

“Markets are not used to this as it usually happens in the corporate space,” he said, adding that the pressure had “shifted” to heavily indebted countries.

High borrowing during the Covid pandemic has helped push debt burdens sharply higher in major economies such as the UK, France and the US. Net government debt will exceed 100 percent of GDP in the United States and France this year, and will be close to that level in the United Kingdom, according to International Monetary Fund projections.

Analysts say the annual deficit has widened and is expected to exceed 7 percent of GDP in the United States in 2025. The French government is targeting a deficit of 5 percent to 5.5 percent of GDP by 2025.

In the UK, the Labor government’s decision in October to ease policy compared to previous plans further unnerved investors. Public borrowing is expected to reach 4.5 percent of GDP in the current fiscal year, according to official forecasts, then decline to 3.6 percent next year.

The additional yield required by investors in UK debt compared to 10-year German bonds rose It topped 2.3 percentage points last month, the largest premium since 1990 and even higher than the level reached after the “mini” Budget for 2022 presented by former Prime Minister Liz Truss.

The spread of France with Germany may rose to its highest level since the eurozone debt crisis, reaching 0.9 percentage points in November. Ten-year US Treasury bond yields jumped from 3.6 percent in September to nearly 4.7 percent.

The moves came even as central banks began cutting interest rates — typically the main driver of bond yields — as the post-pandemic inflation surge faded. The selling was concentrated in longer-term debt, which is most sensitive to the size of the issue.

“I like to think the government bond market is the mature market in the room,” said April Larose, head of specialty investing at Insight Investments.

Bond investors typically provide a “low voice in the background” to the policy-making process, but events in the UK and France showed how they are starting to turn up the pressure, Larousse added. “They will tell governments [when] “They are pushing things too far.”

The sell-off has led to comparisons with the so-called “bond vigilantes” — a group of investors who led changes in U.S. fiscal policy in the 1990s by forcing yields higher, but have become inactive more recently. While tensions are not at those levels, fund managers say there is a decisive shift away from the era of low interest rates and quantitative easing in the wake of the global financial crisis, when central bank buying was the dominant force in bond markets.

“Extremely high debt levels” in countries such as the UK and France have encouraged investors to return to their previous role as “the police responsible for launching responsible fiscal policy,” said Peder Beck-Fries, an economist at investment fund company Pimco, which manages $2 trillion. .

“You don’t need big shocks to fiscal policy or political news to generate big success [lot of] “The fluctuations in the markets,” he added.

With China selling off some of its external debt stock and central banks reducing their balance sheets, “we no longer have a price-insensitive buyer” of bonds, said Niall O’Sullivan, chief investment officer for global solutions at Mercer. “[Bond markets] “As a result, they have become a dominant force,” he added.

A number of governments are borrowing heavily in an attempt to boost growth, and are failing to reassure markets of their plans to rein in the fiscal deficit.

Bank for International Settlements to caution Last December, rising debt levels were “one of the biggest, if not the biggest, threat to the global economy,” and rising borrowing costs were a sign that markets knew they would have to absorb more debt.

In the UK, investors have warned that rising borrowing costs make it increasingly likely that Chancellor Rachel Reeves will break her new fiscal rules when official forecasts are published in March. Moody’s downgraded France’s credit rating in December, warning of a “negative feedback loop between rising deficits, a higher debt burden, and higher financing costs.”

Bondholder activism is even starting to leave a mark on the $26 trillion US government bond market, where the dollar’s status as the global reserve currency means large numbers of investors around the world have no choice but to buy Treasuries.

BIMCO He said Last month, it reduced its exposure to long-term US debt due to sustainability concerns, adding that vigilance over bonds would gradually be felt.

“There is no organized group of gatekeepers willing to work at a certain debt limit; Shifts in investor behavior typically occur on the margins and over time, the asset manager said.

However, some investors say Trump’s tax-cut pledges could lead to such a shift, if he fully implements them.

“If Republicans try to include everything that was discussed during the campaign, without paying for most of it, that to me raises the specter of a return of the bond vigilantes,” said Sonal Desai, CIO of fixed income at asset manager Franklin Templeton. .