Tour The World of Interest Rates

On today’s show we’re going to take a trip around the world through one very specific lens: the yield on the 10-year government bond.

This is not just a tour of interest rates. The 10-year bond is one of the clearest places where investors collectively put a price on inflation, fiscal policy, monetary policy, currency risk, and increasingly, geopolitics.

As we record this, the U.S. 10-year Treasury is around 4.8 percent. Germany is around 3.35 percent. The United Kingdom is above 5.1 percent. France is around 4.2 percent. Italy is also around 4.2 percent. Japan has crossed 3 percent, and South Korea is around 4.4 percent.

Those numbers are interesting individually. But the comparison between them is where the story starts to emerge.

And there’s another dimension to these numbers that I think makes the story even more interesting.

Ask yourself: When was the last time these countries were paying this much for 10-year money? Some of these date back 20 years, and in some cases 30 years. What does that mean for the global demand for US Treasuries, independent of geopolitics? Why take currency risk if you can get decent yield at home?

If there are fewer buyers for US bonds in Germany or Japan, those bond prices fall and you will pay more for a loan in the US. That's the link.

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