(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Mike Dolan

LONDON, May 13 (Reuters) - The relentless rise in

long-term government borrowing costs shows no sign of abating,

and the list of aggravators is growing by the day. If you've

been in thrall to gravity-defying stock markets this year, look

no further to see where stress is building in world markets.

Debt, oil, inflation and interest-rate risks are combining

with domestic political and geopolitical uncertainty, and with

ebbing official and private-sector demand for long bonds, to

push borrowing costsin the Group of Seven (G7) advanced

economies on aggregate to the highest in more than 20 years.

The implied yield on buckets of G7 government debt with

maturities of 10 years or more has risen above 4.6% this week

for the first time since 2004, according to ICE Bank of America

indexes. And this is just the latest installment in a

post-pandemic storm that ended decades of ever-cheaper

government borrowing costs, with headwinds seemingly growing

stronger.

In dollar terms, the Bloomberg long-term G7 bond investment

index has now almost halved in price from its record peak 10

years ago, and it's still falling.

As 30-year U.S. Treasury borrowing costs topped 5% again

this week and stalked their highest in almost two decades,

Britain's 30-year gilt yields hit their highest since the 1990s,

and Japan's equivalents are once again on the cusp of record

highs.

The Iran war and its related energy shock put an end to some

stabilization early in the year. Tuesday's news of another surge

in U.S. inflation, to its highest in almost three years in

April, underscores its impact. And after 11 weeks of the war,

hopes for a peace agreement have been dashed again, and year-end

crude futures are climbing toward $100 per barrel.

Making up almost 50% of total G7 government debt, U.S.

Treasuries are the elephant in the room despite a litany of

domestic worries across the rich-country grouping.

As of Tuesday, futures had wiped out any expectation of

further Federal Reserve interest rate cuts this year, with

inflation now expected to exceed 4% in May - more than twice the

central bank's target. Markets are now almost 80% priced for the

next Fed rate move to be up as soon as next April.

That's despite the expected arrival as Fed Chair later this

week of President Donald Trump appointee Kevin Warsh.

Whatever Warsh's take on interest rates turns out to be, his

view on cutting the Fed's $6.7 trillion balance sheet of bonds

is yet another reason for the long end to shiver. More than a

third of the debt on the Fed's books is in bonds with maturities

of 10 years or more.

LONG BOND SHIVER

But flip to Japan, whose government debt is more than a

fifth of the G7 total, and the picture for long-term debt there

is worse.

A return of long-absent inflation, normalization of Bank of

Japan interest rates after decades near zero and yet another

round of government stimulus spending from newly installed Prime

Minister Sanae Takaichi have sent long-dated borrowing costs

soaring. Thirty-year yields have now more than doubled in two

years.

A running battle to stabilize the ailing yen merely goads

the BoJ to tighten sooner rather than later, while ageing

demographics are eroding appetite for super-long debt among

Japan's once reliable long-bond lovers - its life insurers and

pension funds.

In the euro zone, the energy shock has arguably been more

acute than anywhere else, and markets are pricing European

Central Bank rate rises as soon as next month.

But that just heaps pressure on worrisome domestic debt

dynamics, as French 30-year debt costs hover near their highest

in 17 years amid repeated political and budget tensions. Even in

Germany, 30-year bund yields have hit 15-year highs after its

sudden defense-related spending spree.

Bank of England interest-rate rises are also on the radar to

rattle the UK gilt market.

But even that may have been tolerable if it wasn't for Prime

Minister Keir Starmer's dire predicament this week.

A possible leadership challenge from the left wing of his

ruling Labour Party jarred the long end of the bond market - not

unlike Japan's leadership change did last year - amid concern

about a subsequent loosening of UK budget purse strings.

To top off the debt and rates picture in Europe, there's

been a structural demand shift away from super-long duration

bonds in recent years. Dutch pension funds are now legally able

to invest more beyond that sector, and British defined-benefit

pension funds have also retreated since the budget and bond

shock of 2022.

Back stateside, the headlong dash by so-called hyper-scaler

tech firms to plough hundreds of billions of dollars into the

artificial intelligence datacenter boom is also prompting

substantial bond sales to help fund it, often in multiple

currencies and at super-long maturities.

Competition for governments raising long-bond finance is

clearly rising too.

Yet markets are still far from treating this as a crisis.

Front-loading national debts into shorter maturities may be

one unavoidable consequence. But without a reduction in overall

debt piles, that only intensifies refinancing pressures,

rollover risks and potential volatility for sovereign borrowers.

Some argue government bond woes are part of the reason

savers and investors see little alternative to high-flying

stocks.

But a deepening crunch in bellwether government borrowing

markets, which form the basis of global finance, would be

impossible to ignore for any investor - or the wider economy.

(The opinions expressed here are those of Mike Dolan, a

columnist for Reuters.)

Enjoying this column? Check out Reuters Open Interest

(ROI), your essential new source for global financial

commentary.

Follow ROI on LinkedIn, and X.

And listen to the Morning Bid daily podcast on Apple, Spotify,

or the Reuters app. Subscribe to hear Reuters journalists

discuss the biggest news in markets and finance seven days a

week.