Rising U.S. debt levels present challenges, but there are paths forward 

Fixed Income Perspectives

February 15, 2024

Fixed Income Perspective offers our views on top-of-mind fixed income themes.

Highlights

  • Despite the country’s rising debt burden and budgetary imbalances, U.S. government debt remains the safest and most secure marketable security in the world with virtually zero risk of default.
  • The country’s debt burden and interest costs are currently manageable; however, the U.S.’s policy responses to the 2008 financial crisis and COVID-19 pandemic created an accelerated debt trajectory that will need to slow meaningfully over the next decade.
  • Over time, failure to bring federal spending and revenue into better balance and lowering the country’s debt dependency likely risks negative outcomes. Further credit ratings downgrades, markets imposing higher borrowing costs on the U.S., and the U.S. losing its status as the gold standard of sovereign debt remain risks.
  • Current U.S. yield levels suggest markets are not excessively worried over deficit and borrowing problems in the near term. However, it is possible that concerns around these issues will create periodic upward moves in yields like we witnessed this past fall.
  • We believe policymakers will ultimately use a multi-pronged approach to slow the growth in U.S. debt-to-GDP, including some combination of lower federal spending, targeted tax increases, and investment in areas to boost U.S. productivity and growth. 

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