Rising Borrowing Rates: Why Economists Are Worried

By: rootdata|2026/07/25 10:19:52

What Exactly Is a Borrowing Rate?

France is now borrowing at over 4%, Germany at 3.20%, and the United States at nearly 4.70% for 10 years, levels not seen in over fifteen years for major economies.

This rise in rates is concerning as it increases the cost of public debt, raises mortgage rates, and escalates the financing costs for businesses.

But what exactly does a borrowing rate represent? When a state needs money to finance its expenditures, it issues bonds on the financial markets. In return, it commits to repaying investors on a given date and paying them interest. The borrowing rate corresponds to the price the state pays to obtain this financing.

This rate fluctuates continuously based on market confidence. The more reliable lenders perceive a country to be, the lower the rate. Conversely, doubts about its solvency, persistent inflation, or political instability push rates higher. Creditors then demand better compensation to offset the risk.

Why Are Rates Rising Everywhere in the World?

Several factors are accumulating in 2026. First, the resurgence of conflict in the Middle East has pushed oil prices above $100 a barrel, reigniting inflationary fears. When inflation threatens, central banks tighten their policies, and investors demand higher yields to protect themselves from monetary erosion.

Next, central banks are no longer massively buying debt as they did during the post-2010 decade. The ECB even raised its key rates from 2% to 2.25% in June, and Christine Lagarde does not rule out another tightening in September.

Finally, in the United States, the 10-year yield has surpassed 4.70% for the first time since January 2025, and the 30-year yield peaks at 5.18%, its highest since April 2006.

The Snowball Effect Mechanism

Here is where things get complicated. A heavily indebted state pays an interest charge each year on its debt stock. When rates rise, each new loan costs more. The more the debt is refinanced at high rates, the larger the interest burden grows. This burden must be financed, either through higher taxes or new borrowing.

This is known as the snowball effect. If economic growth remains weaker than the average interest rate on the debt, the debt-to-GDP ratio mechanically increases, even without additional spending. France currently accumulates four aggravating factors: a rate of 4%, a debt level of 115% of GDP, growth below 1%, and the inability to adjust its currency since it shares the euro.

By comparison, the United States and India offset high rates with stronger growth. Australia and Norway, on the other hand, have low debt that alleviates the burden of interest. France does not.

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What Are the Concrete Consequences for the Economy?

The first effect impacts households. In the United States, the average rate for a 30-year mortgage has risen to 6.85%, its highest since June 2025. In the United Kingdom, major banks are raising their fixed rates on new loans. In France, credit conditions are also tightening.

The second effect hits businesses. Financing becomes more expensive, investments are deferred, and stock valuations suffer. Growth stocks, whose expected profits are distant, drop first. For now, High Yield credit spreads remain around 2.7%, in a historically low zone. Credit is not panicking yet, but the pressure on valuations is indeed present.

The third effect is budgetary. Each rate hike reduces the state's maneuvering room. Emmanuel Moulin, governor of the Bank of France, emphasizes the need to adopt a budget for 2027 by the end of the year to avoid a gap of several months that would worsen market distrust.

Should We Fear a Major Crisis?

Not necessarily in the short term, but vigilance is required. The message from credit markets remains measured, and investors do not yet anticipate a wave of corporate defaults. The distinction is essential between pressure on valuations and true systemic financial stress.

For a country like France, the stakes are on the budgetary trajectory. Without a credible strategy for deficit reduction, the interest burden could exceed other major public spending items in the coming years. The Bank of France is counting on growth of 0.5% in 2026, insufficient to mechanically absorb the weight of the debt.

What Impact on Cryptos?

Risky assets are not escaping this climate. When long rates rise, government bonds become attractive without significant risk. Some capital then leaves the stock and crypto markets to seek refuge in bond yields.

However, if the rise in rates reflects a loss of confidence in sovereign debt, some investors might instead seek refuge in rare and uncorrelated assets, such as gold and Bitcoin.

Disclaimer: This content is provided for general branding and informational purposes only and doesn't constitute financial, investment, legal, or tax advice. Any events, rewards, online events, or related information mentioned herein should not be considered a recommendation, solicitation, or invitation to purchase, sell, trade, or otherwise deal in any crypto assets or to use any services. Crypto assets are highly volatile and may result in loss. WEEX services and online events may not be available in all regions and are subject to applicable laws, regulations, and eligibility requirements. You are responsible for ensuring that your use of WEEX services complies with local laws and for carefully assessing the risks before participating in any crypto-related activities.

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