Why the era of cheap government debt is over

When the world's largest pension fund changes its investment strategy, the financial world pays close attention, especially when it plans to drastically reduce its holdings of US government bonds.

According to Reuters, Norway's sovereign wealth fund wants to cut its US bond holdings — which totaled about $215 billion (€186 billion) at the end of June — by $80 billion.

Global investors are increasingly viewing the debt binge with suspicion, especially as the US's national debt passed $40 trillion in August. This week, the yield on 30-year US Treasury bonds climbed to nearly 5.4%, the highest level since 2007.

For highly indebted countries such as Japan , where debt exceeds 200% of economic output, borrowing money on capital markets is getting increasingly expensive. The same applies to Italy, France and the UK.

Germany is in a much better position. At around 65% of gross domestic product (GDP), its debt-to-GDP ratio is only about half that of the US.

Borrowing to modernize its armed forces and infrastructure, however, means that ratio is set to move toward 80% over the coming years.

The US now spends over $1 trillion annually on interest payments — more than $3 billion per day — according to calculations by the Congressional Budget Office. Since 2024, Washington has spent more annually on servicing its debt than on its entire military.

The Federal Reserve Bank of St. Louis calculated that the US national debt has risen by around 650% over the past 30 years  from $5.2 trillion in 1996.