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Investors dumped US bonds in a fresh wave of selling on Thursday, as a major intervention by Donald Trump failed to calm fears regarding America’s spiralling debt.
Yields on 30-year US treasuries rose to 5.26pc in early trading, reversing the drop in borrowing costs after the White House said it would pump billions of dollars into the bond market.
Rising oil prices and renewed inflation fears also pushed yields on benchmark 10-year treasuries higher, which fed into inflated borrowing costs around the world.
This includes in the UK, where yields on 30-year debt climbed to 5.82pc, approaching levels not seen since 1998.
The sell-off came after Wall Street warned Donald Trump that he risks losing credibility with investors after his intervention in the bond market failed to allay fears regarding America’s yawning deficit.
Analysts at JP Morgan said borrowing costs would keep rising unless the US president takes concrete steps to reduce the US’s debt pile, which crossed $40tn (£29.3tn) overnight.
Economists warned that the only way Mr Trump could sustain lower borrowing costs was to cut government spending or accept a weaker dollar.
Thursday’s increase almost reverses the drop in borrowing costs after the Trump administration launched a major intervention to calm investors.
However, a string of analysts warned that the intervention would backfire because investors were losing faith in Mr Trump’s ability to reduce debt.
Jay Barry, a managing director at JP Morgan, said: “Absent real fiscal consolidation, we fear the markets will view this action as lacking credibility.”
He added that this could also shake investor confidence in what is still deemed the world’s safest asset.
“This could contribute to higher term premiums and yields over time should treasury become more opportunistic in its approach to debt management and move further away from its ‘regular and predictable’ tenet.”
At a press conference on Wednesday night, Mr Trump insisted the public should not worry about increasingly volatile bond markets.
Asked whether Americans should be worried, Mr Trump said: “No, I don’t think so. Our country is doing so well despite interest rates.”
He reiterated his belief that US interest rates had remained “artificially high” after policymakers at the Federal Reserve voted to hold rates last month.
However, analysts warned that a weaker dollar was all but inevitable if the administration were unwilling to bring down the US’s $40tn debt, which could fuel a fresh wave of inflation before the midterm elections.
Kit Juckes at Société Générale noted that the US debt pile was already much larger than annual output.
“This will be a growing issue, which will either force the US to tighten fiscal policy, accept higher borrowing costs, or let the dollar weaken,” he said.
Analysts at Jefferies said families would be hit by higher long-term borrowing costs in a move that could cost the Republican Party votes.
Mohit Kumar, of Jefferies, said mortgage rates were tied to yields on long-dated US debt, warning that the “Trump administration cannot afford much higher yields going into the long end”.
It comes as figures suggest the US’s debt interest bill is on course to hit $1tn this month amid surging borrowing costs for the world’s largest economy.
US debt interest stood at $931bn at the end of July, according to US treasury data, with $104bn added to the bill in July alone.
The surge in US debt has been driven in part by billions of dollars in lost income after the US supreme court ruled that a large share of his tariffs were illegal.
Meanwhile, Mr Kumar added that the Trump administration could be tempted by policies that would push pension funds to buy US debt, similar to what was seen in Britain in the early 2000s, when funds shifted from shares into gilts.
The US government is now as risky an investment as AI