US borrowing costs hit 25-year high
US borrowing costs hit 25-year high
Chris PriceFri, August 14, 2026 at 8:02 AM UTC
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The Treasury is being forced to offer higher returns to investors as the US national debt pile soars - Amy Sparwasser/iStockphoto
The US has paid the highest interest rate on newly issued bonds in a quarter of a century as the American national debt soars.
The Treasury sold 30-year government bonds at an interest rate of 5.216pc on Thursday, the highest borrowing cost seen in a debt auction since 2001.
It came hot on the heels of another auction on Wednesday, where 10-year US bonds were sold at an interest rate of 4.683pc, the highest since 2007 for Treasuries of that duration.
Washington is being forced to offer higher returns to investors as the US national debt pile nears $40tn (£29.6tn). The US debt-to-GDP stands at more than 121pc, and Washington now pays more to service its national debt each year than it spends on defence.
James Athey, a fund manager at Marlborough, said: “The US is running a record peacetime deficit while unemployment is low, and the economy is still growing at around trend.
“This is an incredibly worrying situation for a major economy to be in and strongly suggests that the economy isn’t as robust as many are making out. It also means that, should a recession occur, the deficit would blow out significantly, creating real challenges for government funding.
“This large deficit also means that the US government is having to raise a lot of funding each year, meaning more bond supply and further upward pressure on yields.”
Mr Athey also suggested that concerns about the credibility of the US Federal Reserve (Fed) were pushing up borrowing costs.
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Many investors fear that Kevin Warsh, the new Fed chairman, is making a policy error by failing to raise interest rates in the face of higher inflation caused by the war in Iran. Questions have also been raised about his independence from the president.
Kevin Warsh and Donald Trump. Questions have also been raised about the new Fed chairman’s independence from the president - Aaron Schwartz/AFP or licensors
Stephen Innes of SPI Asset Management blamed the high yields on the volume of US debt auctions, the country’s high deficit and a “growing wave of corporate borrowing tied to the AI buildout”.
Tech giants such as Google-owner Alphabet, Microsoft, Amazon, Oracle and Meta have turned to the corporate bond market to raise money to finance.
Goldman Sachs expects bond issuance by the five companies to reach roughly $250bn this year and $400bn in 2027.
The flood of debt into the market means it is a buyer’s market. Bond investors can demand higher yields, pushing up borrowing costs further.
Mr Athey added: “The Big Tech firms, which are driving the infrastructure investment required to support the growing AI ecosystem, are raising capital at an incredible clip and are expected to continue doing so for the next several years.
“That means some supply of new equity issuance, but mostly it means a lot of supply in global corporate bond markets. That is putting upward pressure on yields everywhere.”
The Treasury raised $25bn through the sale of the high-yielding 30-year government bonds on Thursday.
US borrowing costs are still lower than those for the UK. An auction of 30-year bonds in September last year attracted yields of 5.476pc.
Source: “AOL Money”
