US borrowing costs hit highest since 2007 on fears economy overheating

US borrowing costs have jumped to their highest level since 2007 amid fears America’s economy is overheating and pushing up inflation.

The yield on 10-year Treasuries – a benchmark of US borrowing costs – surged as high as 5.12pc on Wednesday, up from 4.96pc.

These levels were last seen just before the global financial crisis forced interest rates near zero.

The pressure on US borrowing costs comes amid inflation concerns as companies increase activity and oil prices rise.

Oil leapt as high as $103 a barrel late on Wednesday, after trading at $98 earlier in the day.

It follows a speech on Wednesday to the United Nations by Masoud Pezeshkian, the Iranian president, vowing never to surrender to the US, after remarks by Donald Trump that he would “annihilate” Iran.

The pressure on borrowing costs was compounded by a closely watched survey of purchasing managers showing that American businesses are expanding at the fastest pace since 2021.

While this is good news for Mr Trump, it has prompted fears that the world’s biggest economy may be overheating.

The Federal Reserve last week raised interest rates for the first time in three years.

However, the S&P Global survey suggests further rate rises may be warranted, as roaring economic activity threatens to spark a fresh wave of inflation.

Chris Williamson, the chief business economist at S&P, said: “To put the growth surge in context, barring the spike in demand following the opening up of the economy after the Covid-19 lockdowns, the latest improvement in business activity is the greatest recorded since early 2015. Business is clearly booming now in both manufacturing and services.”

“This growth is being accompanied by some of the most severe supply chain bottlenecks seen in the near-two-decade survey history, if the pandemic is excluded.”

This is dragging up government borrowing costs around the world, with the interest on UK debt as measured by the 10-year-gilt rising to 5.35pc, which is also similar to levels in 2007.

The surge in borrowing costs poses a headache for John Healey, the Chancellor. Unlike the US, the British economy has shown signs of losing momentum.

While business activity grew in September for the third month running, it was the slowest pace over this period.

Bond yields have risen globally since it became clear over the summer that Mr Trump’s efforts to exit the war he started in Iran were proving futile.

The surge in borrowing costs is already increasing pressure on households remortgaging and businesses taking out loans.

While the Bank of England has so far refrained from raising interest rates, economists are expecting it will be forced to do so in November despite cracks in the job market.