Soaring Interest Rates Cause US Government Interest Payments to Surge... 1,100 Trillion Won in One Year

US Treasury Yield Hits Highest in 16 Years
"Government May Borrow to Pay Interest... Must Cut Spending"

As U.S. Treasury yields soar, the federal government's interest burden is increasing. Not only households and businesses, but the U.S. government, which holds massive debt, is also being squeezed by high interest rates.

[Image source=Yonhap News]

According to Bloomberg News on the 6th (local time), the total interest paid by the U.S. government on Treasury bonds from November 2022 to August this year amounted to $808 billion (approximately 1,090 trillion won). As interest rates rose, the government's interest expenses increased by $130 billion (about 175 trillion won) compared to the same period a year ago.

The central bank's rapid rate hikes have led to an expansion of the government's interest burden. The U.S. Federal Reserve (Fed) raised the benchmark interest rate from 0?0.25% to 5.25?5.50% by a whopping 5.25 percentage points over a year and a half from March last year to September this year. Despite the unprecedentedly rapid pace of rate hikes, the U.S. economy showed strength, and with expectations of prolonged high interest rates, U.S. Treasury yields began to surge sharply in September. The 10-year U.S. Treasury yield surpassed 4.8% this week, marking the highest level in 16 years since August 2007.

Additionally, the U.S. government continued issuing Treasury bonds, causing a supply-demand mismatch. The amount of Treasury bonds issued by the U.S. government reached $26 trillion (approximately 3,510 quadrillion won), doubling in eight years. In the third quarter of this year, the government planned to issue about $1 trillion (approximately 1,350 trillion won) in Treasury bonds. Meanwhile, overseas demand for U.S. Treasuries has not kept pace with supply, fueling the rise in Treasury yields.

Bloomberg News stated, "If high interest rates persist, interest costs will continue to rise," adding, "The government will have to either borrow more money (to pay interest) or reduce fiscal spending."

Earlier, U.S. Treasury Secretary Janet Yellen also acknowledged the recent rise in Treasury yields. At a discussion at the Fortune CEO Initiative Conference held in Washington D.C. on the 3rd, she described the federal government debt as "manageable," but noted, "We expected interest rates to rise at a more normal pace, but nominal rates have increased quite a bit."

Other national governments are also feeling the pressure from the surge in U.S.-originated Treasury yields. The United Kingdom is attempting to limit fiscal spending, and Germany is considering restoring borrowing limits known as the debt brake.

In the market, one proposed measure to stabilize the bond market is for the U.S. government, which has been flooding the market with a "bombardment of Treasury supply," to reduce fiscal spending. However, cutting government spending raises concerns that it could weaken households' ability to respond if the economy worsens in the future.

Bloomberg News pointed out, "The government issued more Treasury bonds at low interest rates during the COVID-19 pandemic to stimulate the economy," adding, "Now that the government has to reissue bonds at much higher costs, concerns about unsustainable fiscal deficits are growing."

This content was produced with the assistance of AI translation services.