How a silent financial threat is smashing superannuation accounts, pushing our mortgages higher… and making tax hikes from Albo more likely: PETER VAN ONSELEN
A global sell-off in government bonds is driving up borrowing costs worldwide, and Australia is not immune, according to columnist Peter van Onselen. Although few Australians directly buy government bonds, the market sets the baseline cost of borrowing for banks, businesses and ultimately households, meaning the sell-off risks pushing up mortgage rates, denting superannuation returns, and forcing the government to choose between raising taxes or cutting spending to cope with higher debt costs.
Australia's 10-year government bond yield has climbed to around 5.2 per cent, its highest level in more than 15 years and sharply up from a pandemic-era low of just 0.55 per cent. The trend is global, with yields in the US, Japan, Britain and Europe also hitting multi-year highs, driven by persistent inflation, large government deficits and central banks keeping interest rates elevated. The OECD expects governments and companies to borrow a record US$29 trillion via bond markets this year, twice as much as a decade ago, with 78 per cent of OECD government borrowing simply refinancing existing debt at these higher rates.
- Global bond sell-off is pushing borrowing costs sharply higher
- Australia's 10-year bond yield hits a 15-year high of 5.2%
- Risks include pricier mortgages, weaker super returns, possible tax hikes
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Australia's government bonds are a way for the federal government to borrow money, and the interest rate it pays on them, known as the yield, acts as a benchmark for borrowing costs right across the economy. When investors sell off these bonds worldwide, yields rise, and that tends to push up what banks charge on mortgages and business loans, and can also affect returns on superannuation, since super funds hold large amounts of bonds and other assets sensitive to interest rates.
This is happening not just in Australia but globally, with similar rises in bond yields seen in the United States, Japan, Britain and Europe. Analysts point to a mix of persistent inflation, governments borrowing more heavily, and central banks keeping their own interest rates high as the main drivers. Because so much government debt needs to be refinanced at these higher rates, the cost of servicing that debt is climbing sharply.
For the Australian government, higher borrowing costs mean tougher choices: either raise more revenue, for instance through taxation, or cut spending, in order to manage the growing expense of servicing its debt. The piece is written by columnist Peter van Onselen and frames these developments as a warning about pressures building on household finances and public budgets alike.