Tapering bond purchases
Back in 2013 the then Fed Chair, Bernanke, spurred a surge in rising bond yields. At the start of this year a couple of Fed speakers started raising expectations of the Fed tapering bond purchases. This helped yields higher. Powell was quick to quieten the impact of those voices on the market at the last FOMC meeting as he did not want a repeat of the 'taper tantrum' back in 2013. Why? Because rising yields= rising interest costs for the US in servicing their debt.
Bloomberg Economics publiser a report that projected debt interest rate costs as a share of the United States GDP. They also looked at three different scenarios. A 100bps shift in the yield curve (similar to 2013's shift). A 200bps shift and a base rate case.
You can see the impact of these scenarios on the chart below
Extra debt means larger repayments
It is no surprise that an increase in debt levels for world governments will necessarily mean larger repayments. However, a 100bps rise in the yield curve will means a debt interest payment that is over 4% of the US's GDP. A 200bps rise will equate to around 6%. So, this is why the Fed do not want to repeat the taper tantrum of 2013.
