Impact of Rising Government Bond Yields on Mortgages and Stock Markets

Rising Bond Yields and Debt Sustainability: Increasing government bond yields are raising concerns about debt sustainability globally, as higher borrowing costs make it more difficult for nations to manage fiscal deficits, leading to a "slow-moving vicious circle" of worsening debt dynamics.

Impact on Mortgage Rates and Economic Activity: Higher bond yields are expected to increase mortgage rates, affecting homeowners, while also putting pressure on stock valuations and constraining corporate investment, despite some positive influences on the corporate bond market.

Market Volatility and Investor Sentiment: The bond market has experienced significant volatility, with rising yields unsettling equity markets, although the traditional inverse relationship between bonds and stocks has been less consistent this year due to various economic factors.

Potential for Government Austerity: Some economists suggest that a period of government austerity could have a stimulative effect on the economy by restoring market confidence, lowering bond yields, and encouraging private sector investment.