Why the era of cheap government debt is over
US debt has topped $40 trillion. How risky is the growing debt burden, and will investors keep funding Washington's deficits?
Norway's sovereign wealth fund plans to slash its US bond holdings by $80 billion, reflecting rising skepticism towards US debt. In August, the US national debt surpassed $40 trillion, prompting global investors to question its sustainability. The yield on 30-year US Treasury bonds climbed to 5.4%, its highest since 2007. This trend is evident in countries like Japan, Italy, France, and the UK, where borrowing costs are increasing.
The US spends over $1 trillion annually on interest payments, surpassing the entire military budget. Despite efforts to reduce the budget deficit, it is projected to increase further this year. The Federal Reserve's bond buybacks aim to keep yields low, but analysts believe spending cuts are lacking. Even with growing debt, the US is expected to continue receiving investor interest as long as its economy expands.
However, competition from AI-related corporate bonds may eventually challenge government bonds' appeal.
Written by urgent.news from DW English (Business)'s reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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