by Thomas Kolbe
American Thinker
On Friday, Moody’s downgraded the U.S. credit rating, sending shockwaves through the bond market. Japan, in particular, is under intense pressure, with yields on its 40-year government bonds (JGBs) surging to 3.45% from 2.09% earlier this year. This upheaval threatens the global foundation of government bonds. Are we on the brink of a new debt crisis?
Long-term, high-quality government bonds from nations like the U.S., Germany, or Japan form the backbone of the modern financial system. Insurers, banks, and pension funds rely on these long-dated securities for stable returns. Their stability shields major capital pools from market volatility and shocks. In Germany, they account to roughly a third of insurance portfolios; in the U.S., about 60%. In essence, government debt underpins our insurance models, transaction mechanisms (settlements), and risk projections for capital investments. The quiet confidence in the stability of these securities sustains the entire financial system. No one anticipates a sudden default by a sovereign issuer.