Sovereign Debt Affordability Strained by Higher Yields

This report assesses the impact of persistent high bond yields on government debt affordability for major economies, concluding that the US and Japan face the most acute fiscal strain.

Key Takeaways

• 1.Higher-than-expected bond yields are significantly straining sovereign debt affordability, particularly for the US and Japan.
• 2.Central banks, particularly the Fed and BoJ, are likely to intervene if yields continue to rise to levels that threaten fiscal stability.
• 3.Germany remains fiscally resilient compared to France and Italy, which face greater sensitivity to funding costs and political fragmentation.

Table of Contents

• US
• Japan
• UK
• Germany
• France
• Italy
• Summary conclusions
• UBS CIO risk views
• UBS CIO valuation views
• Required Disclosures

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