NEW YORK: US borrowing costs rose to their highest level since January 2025 on Tuesday as renewed conflict in the Middle East pushed oil prices above $92 a barrel and intensified concerns over inflation.
The yield on 10-year US Treasury bonds climbed to 4.79%, increasing pressure on government borrowing costs while also influencing interest rates for mortgages, car loans and credit cards.
Why are US borrowing costs rising?
Higher oil prices have raised concerns that inflation could remain elevated, prompting investors to reassess the outlook for US interest rates. Inflation reached 3.4% in the year to July, above the Federal Reserve’s 2% target.
Federal Reserve Governor Michael Barr warned that if inflation failed to ease, policymakers should act decisively to raise interest rates. Investors have consequently increased bets that the Fed could raise rates later this month.
US interest rates have remained unchanged for months at between 3.5% and 3.75%.
How could higher rates affect the US economy?
Bond yields influence borrowing costs across the economy. Higher rates can discourage consumer spending and business investment, potentially slowing economic growth.
US national debt has surpassed $40 trillion, while concerns over government borrowing and heavy investment by technology companies have added to uncertainty in financial markets.
Thirty-year US mortgage rates have also risen to almost 6.7%, their highest level in a year. Treasury Secretary Scott Bessent’s announcement of further government debt buybacks briefly eased pressure on longer-term borrowing costs, but the effect on markets was short-lived.