Climbing borrowing costs have become a headache for Treasury Secretary Scott Bessent. But the United States is not the only country grappling with the potentially destabilizing consequences of soaring government debt.
Last week, 10-year U.S. Treasury bond yields hit their highest point since January 2025, while Japan’s 10-year bond reached its highest point in 30 years. German and French bond yields climbed to levels last seen in 2011 and 2008, respectively, while the United Kingdom’s 30-year bond hit levels not seen since 1998.
In each country, one commonality driving higher borrowing costs is loads of IOUs.
“All the countries have large and rising deficits and debts. All have affordability challenges. All have populations concerned about that,” said Rebecca Patterson, a senior fellow at the Council on Foreign Relations, a nonpartisan think tank.
Bond yields reflect the interest rate investors demand when buying and holding government debt, which is issued in the U.S. as Treasury bonds. Treasury yields act as reference points for rates throughout the economy, so higher bond yields can mean higher interest rates for businesses and consumers buying cars and holding mortgages.
Today’s rising yields reflect multiple factors: Expectations that long-term inflation will persist, caused in part by higher energy costs from President Donald Trump’s war in Iran. The huge demand for cash by private-sector artificial intelligence projects, which compete with the government for investors. And unrestrained government spending with few plans in sight to reduce budget deficits that, in the United States at least, have reached historic proportions.
Those factors all make government bonds less appealing, causing investors to demand higher returns.
The world’s major economies accumulate debt because they are spending more than they raise in revenue. In the United States, federal debt as a percentage of gross domestic product stands at 122 percent. That has more than doubled since 2000, driven by spending on wars, the 2008 financial crisis, the coronavirus pandemic and several rounds of major tax cuts.
Yields were higher in 2000 but those higher rates applied to a national debt equal to just 55 percent of the overall economy.
That means interest payments were also much smaller: just over 2 percent of GDP in 2000 compared to more than 3.2 percent — and rising — today. This year, interest payments will exceed $1 trillion, more than spending on Medicaid or national defense, according to the nonpartisan Committee for a Responsible Federal Budget.
“Any increase in bond rates has profound consequences on the federal budget,” said CRFB President Maya MacGuineas. Because interest payments already are so large, she said “even small uptakes in the cost of borrowing lead to large increases in interest payments.”
Last month, Bessent sought to slow the rise in Treasury yields by doubling the size of a planned buyback of government debt, which caused yields to drop temporarily. But they quickly bounced back. He also intervened to support the struggling Japanese yen to help the largest foreign holder of U.S. debt, avoid selling Treasurys.
Last month, Federal Reserve Chair Kevin Warsh stressed the need to wrangle with persistent inflation, which has outpaced the Fed’s 2 percent target for more than five years. Investors widely interpreted Warsh’s speech in Jackson Hole, Wyoming, to mean that a rate hike is ahead.
Higher interest rates could help stem the 10- and 30-year Treasury sell-off by signaling to investors that the Fed is serious about slowing long-term inflation, though it would boost yields on short-term bonds.
Trump, however, continues to publicly push the new Fed chairman to lower interest rates. In a social media post Friday celebrating strong August job numbers, Trump said he would stop trading with any country that has a trade deficit with the United States if the Fed doesn’t lower interest rates.
“Lower the interest rates because the U.S.A. is a much stronger credit than it was just a short time ago,” Trump wrote on his Truth Social platform. “The Fed Board, with its great new leader, must get smart — BE PATRIOTS for a change.”
The conflicting messages create “a potentially volatile situation” for Treasury markets, said Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics, a nonpartisan research organization.
“A lot depends on the Fed. That’s a major factor,” he said. “Will the Fed stand up to the president and do the right thing?”
Bessent argued at the Group of 20 summit of global finance ministers last week that U.S. economic growth is “reaccelerating,” noting that inflation expectations are down from earlier this year, private sector spending is up, and that corporate profits have risen. He argued that the Trump administration’s campaign to roll back federal regulations and cut taxes on business provide a model for other countries to solve their debt challenges.
“The world is awash in debt,” Bessent said as the summit began. “The only way for us to get out of this is to grow our way out of this.”
So far, however, Trump’s tax cuts and other policies have added to the debt. His One Big Beautiful Bill Act is projected to require $4.7 trillion in additional borrowing over the next decade, on top of a debt that currently stands at $40 trillion.
Without action to reduce budget deficits — this year alone, the U.S. is expected to spend $2 trillion more than it takes in — higher interest rates are likely to continue to plague the U.S. and other high-debt economies, multiple analysts said, adding that economic growth alone is unlikely to solve the problem.
“In general, a responsible government doesn’t count on that,” said Marcello Estevão, chief economist at the Institute of International Finance, a trade group for the global financial services industry.
Eventually, he said, the U.S. will have to take painful action to avoid a default that could upend the world economy: Cut spending on the big entitlement programs — Medicare, Medicaid and Social Security — or raise taxes.
“There is a fiscal adjustment coming,” Estevão said. “Of course it’s hard. Brazil did a reform, India did a reform. And they had to deal with the politics of it.”
Bessent has said he is working on a “fiscal consolidation” plan with the director of the White House Office of Management and Budget, Russell Vought, that will be ready “in the coming weeks or months.”
MacGuineas said she is less optimistic that U.S. policymakers will act before facing a serious fiscal crisis.
“Dealing with the national debt is not easy,” she said. “It takes leadership and it takes political courage and it takes some willingness to compromise. Those are discouragingly not at the forefront of politics right now.”
Rachel Lerman and David Lynch contributed to this report.
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