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Fitch Ratings has revealed that the increasing yields on government bonds, even in the context of policy rate reductions by prominent central banks, underscore the fiscal difficulties confronting numerous sovereign nations, including Ghana, in 2025.
The UK-based firm in a report indicated that the effect on sovereign credit metrics would be contingent upon the scale and duration of the increases.
Additionally, it said, it might also be influenced by the underlying combination of factors related to monetary policy as opposed to those that are non-monetary, which are affecting market movements.
“US and eurozone yields rose at the start of 2025, in some cases to multi-month highs, while UK gilt yields reached multi-year highs. Inflation risks and upward pressure on real interest rates had already contributed to a rising US term premium, pushing US Treasury yields higher in 4Q24 [4th quarter 2024] despite the reduction in the fed funds rate,” the UK-based firm disclosed in its latest report dubbed: ‘Rising Bond Yields Point to Fiscal Challenges for Sovereigns.’
US 10-year yields have also risen by more than 100 basis points since the US Federal Reserve started cutting policy rates last September, and the Treasury yield curve has continued to steepen.
Fitch also said the rising yields were particularly noteworthy given widespread ongoing policy rate reductions.
It added that the latest market moves might reflect continuing shifts in the distribution of perceived inflation risks, partly due to expected tariff increases and tighter immigration policies in the US, as well as possible fiscal loosening by the incoming Trump administration.
However, they are also consistent with market concerns about the volume of planned government bond issuance to meet their borrowing requirements where fiscal deficits remain large.
“Sustained increases in borrowing costs make it harder to reduce deficits and stabilise or reduce public debt, all else equal. Higher term premiums resulting from greater fiscal uncertainty
or perceived credit risk would be particularly unfavourable for public debt dynamics compared to higher bond yields driven by strengthening growth expectations
or higher inflation, due to the lack of offsetting positive impacts on the debt ratio from higher nominal GDP growth,” it explained.
It further mentioned that strong nominal growth had helped to limit the impact of rising yields on developed market sovereign debt ratios as central banks tightened policy from 2022.
