Logan says US government bonds, known as Treasuries, are at the centre of global financial markets, and recent increases in bond yields have far-reaching consequences.
“To a certain extent, everything else is priced off it, even equities and shares and property.”
US Treasury Secretary Scott Bessent has attempted to intervene as yields have climbed, but Logan says the market has not responded as he likely hoped.
“He probably felt like he had a pretty good shot at reading the room and saying essentially, ‘Don’t bet against me. I’m the big guy in the room’, but he probably should’ve known better that markets didn’t quite believe that.”
Logan says the bond market has previously forced US President Donald Trump to take notice, particularly during the fallout from his tariff policies.
“I don’t know if anyone can put Trump in his place, but it was certainly something that made him … sit up and take notice.”
Now, the bond market is also playing an increasingly important role in the artificial intelligence boom.
Logan says technology giants are borrowing extraordinary sums to fund AI infrastructure, with about a third of their investment coming from the bond market.
“These companies probably in aggregate were maybe a few tens of billions of dollars in total amounts of debt – and now they’re looking at hundreds of billions of dollars each.”
While the biggest technology companies remain financially strong, Logan says the pace of borrowing is testing investors’ appetite.
“We are starting to see some of those speed breaks on the AI build-out.”
The consequences of rising bond yields are also being felt by governments, particularly those already struggling with high levels of debt.
In France, protesters are demanding greater spending on public services, but the country is running large deficits and government debt is high. The bond market’s concern is reflected in higher yields.
“That is the bond market saying, ‘Look, France, we really like you, but if you want to keep borrowing this much, it’s going to cost you more’,” Logan says.
Despite having considerably less government debt than France, New Zealand is not immune.
“When it comes to those longer-term rates, we’re actually in the same market as all these giants.”
That means longer-term mortgage rates can be influenced by global borrowing costs, regardless of what the Reserve Bank does with the Official Cash Rate.
Watch or listen to the full episode of The Prosperity Project for more.
The Prosperity Project is hosted by Nadine Higgins, an experienced broadcaster and financial adviser.
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