Image source, EPA/Shutterstock By Faisal Islam Economics editor Published 2 hours ago It is not just the wildfire burning in the bond markets, with many countries facing interest rates at multi-decade highs. The markets lending money to governments appear to be changing more fundamentally too. Over summer, the message has been made clear: countries will have to pay more to borrow cash. The immediate reason is the ongoing closure of the Strait of Hormuz and renewed hostilities between the US and Iran, which has pushed up inflation and, in turn, raised expectations of higher interest rates in the world's major economies. Markets had assumed tensions would subside, and so too would oil and gas prices, ahead of the US midterm elections in November. It was wishful thinking, based on the hope that US President Donald Trump would want the conflict in the Middle East resolved well before Americans go to the polls. But that has not happened, leaving markets pricing in higher energy prices, a chronic Gulf crisis, higher inflation for longer - and so higher interest rates. But that is only part of the story. The bigger picture is rising demand for borrowing across the world - and not just from governments. Big tech companies are turning to the same bond markets to raise hundreds of billions of dollars for investments in AI data centres. Over $219bn ( 162bn) of debt has already been issued this year by the US "hyperscalers" such as Google, Amazon and Meta, nearly a third of it in currencies other than the dollar, including sterling. The total issued last year was $93bn, while before that it averaged less than $40bn a year. Some expect the tech giants to raise $400-$500bn from the bond markets this year. These are staggering sums, raising competition in the market and pushing up the price for governments. Looking east, there is another major borrower: Japan. It has the highest debt burden, relative to its GDP, of the major economies and is the biggest single lender to the US government. Until recently its central bank's interest rate was zero, but that has crept up to help combat rising inflation. As a result, its government bond yields have been pushed to 30-year highs. The declining value of the yen complicates things, but the bottom line is that there is a change afoot in the global flow of money. Why are UK borrowing costs rising and what does it mean for me? Published 5 hours ago The biggest factor pushing up rates is the credibility of the borrowing plans set out by major countries. The increase is not based on fears about countries "going bankrupt". But it is based on the brutal market equation that if a country wants to borrow more, and to do so without a credible plan, especially if there are doubts over the stability of a given government, it should expect to pay a higher rate. Influential economists lean on different factors. Mohamed el-Erian told me the AI...
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