Governments can still borrow. Households will pay more for the privilege.

By Reagan Steele – Business & Economic Policy Writer

California is currently in the midst of a serious cost of living crisis, but now a sell-off in government bonds threatens to make the crisis worse not only for Californians, but for people around the world. This global bond sell-off is raising the price of money. When that price rises, mortgages, car notes, credit cards and local taxes follow.

Investors are now dumping sovereign debt from Washington to Tokyo. Yields move opposite prices, and interest rates governments must pay to borrow are on the rise. The 10-year U.S. Treasury yield is near 4.77 percent. The 30-year is above 5.2 percent, close to a two-decade high. Japan’s 10-year crossed 3 percent for the first time since 1996. British gilt yields are the highest since the financial crisis. German bunds are at levels last seen in 2011.

The Treasury 10-year is the benchmark lenders use to set the 30-year mortgage. A family that could have locked a home loan last year now faces a higher monthly payment for the same house. Many families are now priced out of the housing market entirely and must stay in the rental market, which keeps rents firm. Auto loans and small-business credit are priced off the same curve. Credit-card rates, already high, have less room to fall.

That is the household consequence, but what is ultimately the cause and what are the broader impacts on the economy?

A government that overspends sells bonds. If buyers demand a higher yield, the Treasury’s interest bill grows. Lenders then charge private borrowers more because the “risk-free” alternative just got richer. Companies delay hiring or pass the cost into prices. Cities and school districts selling municipal bonds pay more to pave a road or replace a roof. The choice at the council table becomes higher taxes or fewer services.

The sell-off has three sources. Public debt is enormous: U.S. federal debt has passed $40 trillion; global public debt exceeds $110 trillion. Energy prices jumped again with renewed U.S.-Iran fighting, and markets no longer assume central banks can cut their way out of inflation. Defense, pensions and health care are all rising at once. IMF Managing Director Kristalina Georgieva warned this week that higher yields in advanced economies threaten to erase debt progress in poorer ones.

Treasury Secretary Scott Bessent has urged calm, arguing the American economy remains strong and a short stretch of ugly trading does not rewrite the story. While US debt has ballooned to $40 trillion, this fact alone does not negate America’s economic strength. The same is true in California, which still carries sound ratings of Moody’s Aa2, S&P AA-minus on the strength of a large tax base. But despite these positive rankings, the cost of borrowing is rising.