Rising US debt puts pressure on government borrowing costs

The US national debt has surpassed $40 trillion as investors question the sustainability of Washington’s borrowing. DW reports that higher Treasury yields, potential shifts by major bondholders and competition from corporate debt are increasing pressure on the government, although economists say investors still have few alternatives to US markets.

The United States is facing growing scrutiny over the pace and cost of its borrowing after its national debt surpassed $40 trillion in August. DW reports that the yield on 30-year US Treasury bonds recently approached 5.4%, its highest level since 2007, as investors reassessed the outlook for US deficits and debt.

Norway’s sovereign wealth fund plans to reduce its holdings of US government bonds by about $80 billion, according to Reuters as cited by DW. The fund held approximately $215 billion in US bonds at the end of June. The planned reduction is presented as a sign that some large investors are becoming more cautious about US government debt, rather than as evidence of a broad withdrawal from Treasury markets.

The cost of servicing the debt is already substantial. DW says the US spends more than $1 trillion a year on interest payments, citing Congressional Budget Office calculations, and has spent more annually on debt service than on its military since 2024. The Federal Reserve Bank of St. Louis calculated that national debt increased by about 650% over the past 30 years, from $5.2 trillion in 1996.

The US budget deficit is expected to reach nearly 6% this year, while Treasury Secretary Scott Bessent has sought to halve it. DW reports that analysts consider that target difficult to achieve because of high spending and weaker revenue. Capital market strategist Carsten Roemheld of Fidelity International said the government’s fiscal path would be difficult to sustain if it continued.

Bessent has also announced plans to increase long-term US government bond buybacks from $2 billion to as much as $6 billion. Roemheld said the measure was too small by itself to keep yields down over the long term. Kim Crawford of JPMorgan Asset Management told the Financial Times that bond markets now demand greater fiscal discipline.

Despite these pressures, economists cited by DW do not see an immediate loss of the US market’s central role. ING economist Carsten Brzeski said Europe, China and emerging markets cannot yet replace it. Roemheld said the US was unlikely to default, but warned that continued borrowing could weaken confidence and put pressure on the dollar. Competition from corporate borrowing, including debt issued to finance artificial-intelligence infrastructure, could also make it harder for the Treasury to attract investors at low rates.