This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from The i Paper. If you’d like to get this direct to your inbox, every single week, you can sign up here.

This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from The i Paper. If you’d like to get this direct to your inbox, every single week, you can sign up here.

Something huge is happening on the world’s financial markets and it will have a profound impact on all of us. It’s the rise in bond yields – the rate of interest paid when a government, company or other organisation raises money by issuing new debt. They have shot up over the past few weeks and show every sign of climbing higher still.

So when our Government wants to borrow for 10 years, it now would have to pay interest of around 5.25 per cent. That’s the highest since 2007. And if it wants to borrow for 30 years, the rate would be nearly 5.9 per cent, the highest since 1998. It’s a similar situation for other governments, though they don’t have to pay quite as much as we do. For the US, the equivalent numbers are about 4.8 per cent and 5.3 per cent. Even Germany, which can borrow relatively cheaply, the rates are 3.4 per cent and 3.8 per cent. In every case, these are the highest rates for nearly 20 years, and because governments have to pay more, that means everyone else does too.

There are three reasons why this is happening.

One is that would-be lenders do not trust the ability of the central banks to get inflation down to their target of 2 per cent. If they did, lending at 20 years at 5 per cent would seem a good proposition, for it would be a 3 per cent real return. But if, as they fear, inflation may average 3 per cent or 4 per cent over the next decade,........

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