Fitch Ratings has disclosed that the rising government bond yields, despite policy rate cuts by major central banks, highlight fiscal challenges facing many sovereigns including Ghana in 2025.

According to the UK-based firm, the impact on sovereign credit metrics will depend on the magnitude and longevity of the increases, but may also reflect the underlying mix of purely monetary policy-related versus non-monetary considerations influencing market moves.

“US and eurozone yields rose at the start of 2025, in some cases to multi-month highs, while UK gilt yields reached multi-year highs. Inflation risks and upward pressure on real interest rates had already contributed to a rising US term premium, pushing US Treasury yields higher in 4Q24 [4^th quarter 2024] despite the reduction in the fed funds rate”, the UK-based firm disclosed in its latest report dubbed “Rising Bond Yields Point to Fiscal Challenges for Sovereigns”.

US 10-year yields have also risen by more than 100 basis points since the US Federal Reserve started cutting policy rates last September, and the Treasury yield curve has continued to steepen.

Fitch also said the rising yields are particularly noteworthy given widespread ongoing policy rate reductions.

It added that the latest market moves may reflect continuing shifts in the distribution of perceived inflation risks, partly due to expected tariff increases and tighter immigration policies in the US, as well as possible fiscal loosening by the incoming Trump administration.

However, they are also consistent with market concerns about the volume of planned government bond issuance to meet their borrowing requirements where fiscal deficits remain large.

“Sustained increases in borrowing costs make it harder to reduce deficits and stabilise or reduce public debt, all else equal. Higher term premiums resulting from greater fiscal uncertainty or perceived credit risk would be particularly unfavourable for public debt dynamics compared to higher bond yields driven by strengthening growth expectations or higher inflation, due to the lack of offsetting positive impacts on the debt ratio from higher nominal GDP growth”, it stated.

It mentioned that strong nominal growth had helped to limit the impact of rising yields on developed market sovereign debt ratios as central banks tightened policy from 2022.