Growing interest
Last Wednesday, we charted the soaring yield on US treasury bonds, as the US government’s cost of borrowing jumped to 16-year highs. That move spooked the markets, but the focus in the last few days has increasingly been on the budget itself after Congress narrowly avoided a government shutdown, postponing spending decisions by another few weeks.
Like most developed nations, the US spends more than it takes in taxes — essentially “living beyond its means”. For years, that wasn’t an issue, with Uncle Sam able to borrow at close to record-low rates for a decade.
However, higher borrowing costs have changed the game. Indeed, forecasts from the Congressional Budget Office project that the majority of future government deficits will not be down to net new spending, but rather paying the interest on what's already owed (some $33 trillion), with deficits expected to rise as a share of GDP for the coming decades — a projection that was made before the most recent bond meltdown.
