The world has a new, expensive problem: The cost of borrowing money for decades keeps going up, making it getting harder to dismiss as a temporary market tantrum.

Why it matters: The relentless rise in borrowing costs in recent months makes a long-feared scenario harder to dismiss: that investors demand higher and higher returns in ways that make it prohibitively expensive to finance investments meant to power the next era of economic growth.

• The consequences extend far beyond financial markets.

• Pricier money could mean businesses investing and hiring less, governments having less room to spend and households paying more to borrow for homes and cars.

What they're saying: "Global bond markets have caught on fire. ... Reckless fiscal policy is catching up with governments," Brookings Institution fellow Robin Brooks wrote on X this morning.

• "At this point, it should be clear that something very unusual is going on in global bond markets," Brooks wrote in a separate post.
• He noted that investors are betting U.S. interest rates will stay unusually high for years to come — even higher than they anticipated when global central banks were raising rates aggressively in 2022.

Driving the news: From the U.S. to Japan, long-term interest rates are pushing into territory not seen in years or decades at one of the most consequential moments for the global economy.

• 🇺🇸 The 30-year Treasury yield hit 5.3%, the highest since June 2007.
• 🇯🇵 Japan's 30-year yield climbed to 4.1%, near a record high.
• 🇪🇺 France's hit 4.9%, the highest since 2008, while Germany's comparable rate hit 3.7%, the highest since the euro-area debt crisis in 2011.
• 🇬🇧 Britain's reached 5.8%, nearing the highest since 1998.

The big picture: The Middle East conflict has intensified the sell-off, pushing oil prices back above $90 a barrel and reviving inflation fears.

Yes, but: The surge in long-term borrowing costs predates the latest oil spike.

• It's colliding with other sources of investor angst, like enormous government borrowing and AI-fueled corporate debt, meaning that more bonds are competing for buyers.
• (Axios' Matt Phillips explained another factor — driven by Federal Reserve chairman Kevin Warsh — yesterday.)

"These are not new forces, and the rise in long-term yields has been gradual rather than sudden," Anshul Pradhan, head of U.S. rates at Barclays, wrote in a note.

• In the U.S., three reports — sluggish consumer spending data, an unexpectedly bad jobs report and a cool inflation report — trimmed bets of a Fed rate hike, but they did not stem the sell-off.
• "What is notable today is not the existence of these pressures, but that they appear strong enough to overwhelm individual soft-data releases. Three independent releases argued for lower yields this month; long-end yields moved higher anyway," Pradhan wrote.

Friction point: The price of money is soaring just as the world's biggest economies require huge sums of money for major transformations.

• AI: Tech giants are borrowing vast amounts to finance data centers, chips and power infrastructure, putting them in direct competition with governments and other borrowers for investors' money.
• Demographics: Governments face mounting costs for pensions, health care and other benefits as their societies age, putting more pressure on already stretched public finances.
• Geopolitical chaos: Wars and geopolitical instability are forcing governments to rebuild military capacity and new energy infrastructure to rely less on adversaries.

The bottom line: The world is trying to finance some of its most expensive ambitions in decades just as cheap money is disappearing.

• There's also the risk that something breaks as higher rates expose vulnerabilities.
• The regional bank failures of 2023, for example, came after surging interest rates hammered Silicon Valley Bank's bond portfolio (which compounded poor risk management and vulnerabilities in its deposit base).

Governments are entering this moment deeply indebted. More revenue will go toward interest payments as old debt gets refinanced at today's higher rates.

• America is already watching that dynamic play out: Annualized interest costs have reached $1.2 trillion, exceeding defense spending.

What they're saying: "The government consistently rolls over portions of its debt at market prices, so the effective interest it pays on its entire debt stock slowly rises in a high-rate environment," economic researchers at Charles Schwab wrote this morning in a note titled "America's New Debt Reality."

• The risk is a vicious cycle: Bigger interest bills add to deficits and borrowing needs, putting even more bonds into a market already awash in debt.

Zoom in: Debt held by the public is currently about 101% of GDP, according to the Congressional Budget Office. The nonpartisan agency projects that will rise to 120% in 10 years.

• The situation unfolds in relatively good economic times. A recession would mean weaker revenues and likely more spending to support the economy, requiring Washington to borrow even more.

What to watch: Last week, the government paid the highest auction yields on 10-year notes since 2007 and 30-year bonds since 2001.