Kathmandu— Following a period of relative stability around 4.0% in February, the interest rate on 10-year Treasury bonds has risen to approximately 4.7%, representing an increase of 0.7 percentage points or 70 basis points, with significant implications for the economy and borrowing costs across multiple sectors.

Impact on Borrowers

The increased interest rates are directly affecting prospective homebuyers, adding roughly $2,100 annually to mortgage payments for a $300,000 loan. State and local governments will also face higher expenses when financing infrastructure projects or other needs, while corporations will see an increase in borrowing costs as well.

Data Center Investment Costs

The rise in rates is particularly notable for large-scale investors like hyperscalers building data centers; if these companies carry $1 trillion in debt over the next two years, the 70 basis point increase will add an estimated $7 billion annually to their interest payments. This comes on top of any potential increases in risk premiums they may also face.

Deficit Spending and Federal Reserve Projections

The increase in interest rates is not linked to expectations of higher inflation—inflation expectations are, if anything, slightly lower than before the recent escalation of conflict. Instead, investors now anticipate larger budget deficits, driven by a proposed $1.5 trillion military budget for fiscal 2027, a substantial increase from the $860 billion in the previous Biden administration budget. The Federal Reserve Board is also projecting higher Federal Funds rates in 2027 and 2028 than previously anticipated, which aligns with the observed jump in interest rates.

Global Impact

The impact of these rising rates extends beyond U.S. borders; long-term interest rates on debt from other countries have increased by a similar amount. While rates remain lower in some nations—Germany’s 10-year rate is currently 3.2% and France's is 4.1%—the gap between these rates and those in the U.S. has remained relatively constant, indicating that recent events are driving up interest rates globally.

The current trajectory suggests continued pressure on borrowing costs for both domestic and international entities as long as geopolitical tensions and increased budget deficits persist.

(With inputs from CounterPunch)

Originally published on abcnews.com.np.