Higher for Longer Rates Mean No Escape From the Debt Squeeze

Companies going bust, mounting credit card debt, higher mortgage bills.

The highest interest rates in years are taking a toll from the US to Australia, creating cracks in economies despite low unemployment and booming stock markets. Even where consumer spending looks solid, it’s often being funded by borrowing, from credit cards to “Buy Now Pay Later” services.

It’s all part of the new normal, a world where the floor for rates is much higher and where corporate, household and government borrowers have to accept that this backdrop is sticking around for longer.

That’s particularly the case in the US, where the strength of the economy means traders have been reining in Federal Reserve rate-cut expectations since the start of the year. The European Central Bank is moving faster, on track to lower rates next week, but easing beyond that is an open question.

So, while 10-year US Treasury yields have slipped back after touching 5% last year, they remain elevated, and have been rising again in recent weeks. Ultimately, there are emerging signs that the lagged impact of higher rates is starting to flow through.