Government bond yields surge…US, Japan, UK ratings at risk

Concerns about the sovereign credit ratings of other advanced economies such as the United States, Japan and the United Kingdom are growing as well as in France. Their national debt has been swelling like a snowball, and fiscal soundness is steadily deteriorating.

Moody's in May shocked financial markets by downgrading the United States' sovereign credit rating from the top 'Aaa' to 'Aa1'. Moody's explained the reason for the downgrade, saying, "Over the past decade, U.S. federal government spending has increased while tax-cut policies have continued, causing debt to rise sharply."

Standard & Poor's (S&P) downgraded the U.S. credit rating one notch from the highest level in August 2011, and Fitch did so in August 2023. However, because the so-called 'Big Three' international rating agencies all maintain a 'stable' outlook on the U.S. credit rating, the possibility of further downgrades for the time being is considered low. Still, soaring U.S. government bond yields are cited as a risk. The yield on the U.S. 30-year Treasury was an annual 4.97% on the 2nd, approaching 5%. It is 0.6% percentage points higher than a year ago.

Japan's 30-year government bond yield is also at a record high at an annual 3.22%, and the U.K. (annual 5.5%) and Germany (annual 3.3%) are also maintaining high levels. This is analyzed as being driven by concerns over major countries' fiscal soundness and political instability, which are pushing up long-term yields. There are concerns that as investors demand higher yields on government bonds, a vicious cycle of 'sharp rises in bond yields → increased government interest burden → credit rating downgrades' could occur.

Mansu Choi reporter bebop@hankyung.com