What higher interest rates are telling us

The bond sell-off and the resulting higher interest rates are largely a story of higher growth prospects in the United States, Treasury Secretary Scott Bessent argued Tuesday.

• "If we look at the composition of the bond yields — inflation expectations are flat-to-down," he said in a fireside chat at this week's G20 meeting of global finance ministers in Asheville, North Carolina. "This is a growth story. Growth, I believe, is reaccelerating."

• "We had some very good discussions here over the past few days and everyone agreed that growth has been better than they thought it would have been, given the Iran conflict."

Zoom out: Speaking to reporters later on Tuesday, Bessent acknowledged that the bond sell-off was a global phenomenon — one that has intensified as top finance ministers gathered in Asheville.

• Japan's 10-year yield hit 3% for the first time in three decades.
• Asked by Axios how much Japan and other global forces were contributing to the move, Bessent said it was "very difficult to deconstruct" what's behind any individual market move.
• Bessent said Japanese officials are "taking the right steps" and argued that higher yields partly reflect the success of policies that helped Japan emerge from a decades-long deflationary trap.

Reality check: In trying to stabilize debt-to-GDP ratios, growth is welcome; it makes the denominator bigger. But for many countries, the path to fiscal sustainability still likely runs through deficit reduction, reducing the numerator.

• EU commissioner Valdis Dombrovskis told reporters Tuesday morning that the bond sell-off reflects the reality that governments need to get deficits under control.
• He added that any fiscal support to reduce strains from the Middle East conflict should be "temporary and targeted," rather than piling on new budget strains.

What they're saying: "Faster growth is necessary for an improved fiscal situation. The real question is: Is it sufficient? We could debate that," former U.S. Treasury official Joe Lavorgna told Axios on the conference sidelines.