US Debt Interest Costs Surge to $1.2 Trillion as Borrowing Rates Rise

By Staff, Agencies

The cost of servicing the United States’ massive debt has climbed to roughly $1.2 trillion annually as Washington replaces older, low-interest debt with new borrowing at significantly higher rates, according to Axios.

The interest bill has now surpassed US defense spending, adding pressure to the federal budget as governments worldwide face historically high debt and borrowing costs well above the ultra-low rates of the previous decade.

As US Treasury securities mature, Washington issues new debt to repay them, gradually raising the government’s average borrowing cost.

Researchers at Charles Schwab warned that rising interest payments could create a cycle in which larger deficits force further borrowing, increasing the supply of Treasury debt and potentially pushing yields higher.

Meanwhile, US debt held by the public stands at around 101% of GDP and is projected by the Congressional Budget Office to reach about 120% within a decade.

The burden could intensify during a recession, when falling tax revenues and higher government spending would likely require additional borrowing.

Recent Treasury auctions have underscored the pressure, with 10-year notes last week recording their highest yield since 2007 and 30-year bonds reaching their highest since 2001. Higher yields make refinancing existing debt and financing new deficits increasingly expensive.

With trillions of dollars in US debt continually maturing and being replaced, even modest increases in borrowing costs could add hundreds of billions of dollars to annual spending, leaving Washington with less fiscal room as its debt burden expands.