The annual debt servicing cost of the US government is close to $1 trillion, and the net interest expense as a share of total government revenues is near all-time high levels. Higher rates are not only slowing down consumers and corporates through higher borrowing costs. Higher rates are also a drag on growth through higher debt servicing costs for the government. In other words, higher debt servicing costs are impacting not only consumers and corporates but also the government. The bottom line is that when government debt levels are high, it is more difficult for interest rates to stay elevated for a long time because the negative impact on the economy of higher rates is also working through higher debt servicing costs for the government.
- Date Posted:
- August 22, 2023
The yield on 10-year inflation-protected Treasuries on Monday pushed over 2% for the first time since 2009, extending its ascent from year-to-date lows near 1%. Not long after, the yield on 10-year Treasuries without that protection surpassed October’s peak, climbing nearly 10 basis points to as much as 4.35%, a level last seen in late 2007, before slightly paring the gain.