The global GDP-weighted yield curve is steepening, maintaining a positive slope where 10-year government bond yields outpace short-term rates and supporting worldwide credit expansion despite central bank rate hikes.
Fisher Investments UK reported that the United Kingdom joined this year’s global rate hike cycle by raising its Bank Rate a quarter point to 4.0% on November 5. Australia also raised its cash rate to 4.85% last Tuesday, marking its fifth increase of the year. These actions follow monetary policy adjustments in Europe, Japan, and North America, prompting warnings from various commentators regarding tightening credit conditions.
Fisher Investments UK said that these rate hikes are policy mistakes outside of Japan, but argued that the global yield curve remains still steep. Sovereign yield curves act as reference rates for multiple loan types. Banks borrow short-term funds to finance longer-term loans, meaning profitability occurs when long-term yields exceed short-term rates.
The global GDP-weighted yield spread between 10-year and 3-month government yields sits in positive territory following a pronounced recovery from 2024 lows. Developed world yield curves show financial conditions becoming more accommodative rather than restrictive.
UK bank lending rose 6.3% year-over-year through September, slightly above the global 6.2% average. Lending to small and medium-sized businesses climbed 5.7% year-over-year, marking the fastest pace since pandemic-era emergency loan programs.
Rate hikes in Australia have compressed the spread between 10-year government bonds at 5.0% and the 4.85% Cash Rate Target. Non-financial Australian credit continued growing at 8.0% year-over-year in September. Australian banks maintain access to global funding markets by borrowing overseas, sustaining lending growth that has continued since 2004 despite prior yield curve inversions.
| Metric / Region | Recent Rate / Yield Level | Credit Growth Rate |
|---|---|---|
| United Kingdom (BoE Rate) | 4.0% (effective Nov 5) | 6.3% y/y (Sept) |
| United Kingdom (10-Year Gilt) | 5.2% | 5.7% y/y (SME lending) |
| Australia (Cash Rate Target) | 4.85% | 8.0% y/y (Non-financial credit) |
| Australia (10-Year Bond Yield) | 5.0% | Continuous since 2004 |
Global bank loan growth has nearly doubled compared to two years prior as the yield curve steepened. Continued global economic growth relies on this credit extension, though risks would mount if additional central banks invert their domestic curves.
