[YouTube] The U.S. Federal Reserve is in the midst of raising interest rates. By raising the cost of borrowing and making debt (money) more expensive, you control spending thereby controlling inflation. The United States is currently experiencing the worst inflation crisis in some 40 years. The Federal Reserve's interest rate hikes are the traditional tool in combatting such a problem.
The challenge of inflation is not America's alone. Across Europe and Asia, global currencies are seeing inflation drive up the cost of food, fuel, consumer goods, and housing. Unlike the United States, however, most countries' central banks do not have as direct a course to combat inflation as the Federal Reserve.
A combination of demographic and Russian sanction-related inflationary pressures limit most European nations' abilities to aggressively raise rates. A population as old and quickly aging as Germany or Italy's is unlikely to see a bounce back in consumer spending once rates return to zero--where they have been for over a decade. This is a move the Europeans copied out of Japan's playbook, whose nearly 20 years of near-or-at-zero interest rates are likely to be their foreseeable future.
So what does this mean for bond markets? The U.S. has the demographic strength and economic resilience to keep raising its interest rates, while the rest of the world will be forced to continue issuing bonds at or near zero. Which means their bonds, and ability to borrow, will soon become strongly uncompetitive vis-a-vis the United States.