The warning comes as US national debt has reached a record $40 trillion, roughly double its level a decade ago. Analysts say the United Kingdom is particularly exposed because of its high debt-to-GDP ratio, while households, companies and the government could all face higher borrowing costs if global bond markets come under sustained pressure.
Rising US Treasury Yields Put Global Markets Under Strain
Investors demanded yields as high as 5.22 percent at a $25 billion auction of 30-year US Treasury bonds on Thursday. According to City AM, that was the highest borrowing cost for this type of long-dated US government debt since August 2001 and markedly above the rate seen at the equivalent auction shortly before Donald Trump began his second presidential term.
The increase has revived concerns about the scale of US borrowing. America’s debt pile has risen to $40 trillion, while the federal deficit has widened as government spending continues to exceed tax revenues. City AM reported that the gap has grown sharply since Trump returned to office, following a package of tax cuts. Attempts to reduce federal expenditure through the Elon Musk-led Department of Government Efficiency have not been sufficient to offset the shortfall.
The concern among analysts is that repeated Treasury auctions at higher yields and lower prices could place broader stress on financial markets. Helen Thomas, chief executive of Blonde Money, said that if fresh US bond sales continued to require “higher and higher yields and lower and lower prices,” there was a possibility that “the system will get clogged up.” According to Thomas, such a development would be many times larger than the turmoil previously experienced in the UK gilt market and would have consequences across financial markets.
Britain Faces Higher Mortgage, Corporate and Government Borrowing Costs
A sharp repricing of US Treasuries could transmit directly into the British economy because of the central role of American government debt in global markets. Roger Lee, head of equity strategy at Cavendish, told City AM that the consequences for the UK would be “very bad,” particularly if higher borrowing costs pushed up mortgage rates and corporate debt expenses.
Lee said a recession could follow either from the direct impact of increased debt-servicing costs or from fiscal consolidation forced by a crisis in the gilt market. He pointed to the economic pain experienced by parts of Europe and Asia during previous debt crises. The pressure would also extend to government finances. Higher gilt yields would increase the cost of servicing Britain’s debt, adding strain at a time when domestic borrowing costs have already been affected by inflation and political uncertainty.
According to GB News, the developments are also increasing scrutiny on Chancellor John Healey ahead of his fiscal statement on October 28. James Sproule, chief economist at Handelsbanken, said Healey should exercise “even more caution” and adhere to both the letter and spirit of the government’s fiscal rules.
Sproule said the Chancellor should avoid changing debt calculations, demonstrate that debt-to-GDP is falling by at least one percentage point and show continued movement along the planned deficit-reduction path. The warnings reflect a broader concern that instability in the US Treasury market would not remain confined to America, but would pass through to highly indebted economies such as the UK.
