Fodders for the Bond Vigilantes: US Debt Ceiling, Japanese Government’s Interest Payments

The following developments signify as fodder for the bond vigilantes

In the US, increased political pressure to increase the debt ceiling.

From the  New York Times;

Unless Congress raises the debt ceiling, the Treasury Department said on Monday that it expected to lose the ability to pay all of the government’s bills in mid-October.

That means a recalcitrant Congress will face two major budget deadlines only two weeks apart, since the stopgap “continuing resolution” that finances the federal government runs out at the end of September.

Members of Congress are sharply divided over what to include in measures financing the government and raising the debt ceiling…

The debt ceiling stands at about $16.7 trillion. Congress passed a measure increasing it by about $300 billion in January.

The insatiable US government will keep racking up on debts to finance her extravagant spending. Improving budget deficits today are only temporary.

In Japan, the ramifications of higher bond yields, the Japanese government requests an increase in  budget for servicing debt. From Reuters:

Japan's Finance Ministry will request a record 25.3 trillion yen ($257 billion) in debt-servicing costs under its fiscal 2014/15 budget, up 13.7 percent from the amount set aside for this year, a document obtained by Reuters showed on Tuesday.

The decision, aimed at guarding against any future rise in long-term interest rates, underscores the increasing cost Japan must pay to finance its massive public debt.

The country's debt is double the size of its $5 trillion economy and is the biggest among major industrialised nations.

Rising bond yields in the face of slowing global economic growth means higher costs of real funding. This entails higher credit risks which should be manifested in interest rates.