Mon, 19 May 2025

Mon, 19 May 2025 US debt downgrade drives up borrowing costs

Borrowing costs for long-term US government debt jumped past 5% for the first time in 18 months, before retreating.

* The interest rate on the US government's long-term debt surpassed 5% on Monday, its highest level since October 2023.
* Moody's downgraded the US government's credit rating last Friday, citing rising debt over the past decade and little progress towards resolving it.
* Congress is advancing a tax-and-spending bill that would add trillions to the US government's $36tn in debt.
* Historically, the US government has been shielded from high interest rates due to its strong economy and reputation as a reliable borrower.
* The new risks include rising yields on 30-year Treasuries, driven by concerns over soaring prices, tariffs, and increasing debt.
* Interest payments are projected to consume 30% of the federal government's revenue by 2035, affecting budgets and public spending.
* Higher interest rates for the government would also mean higher interest rates for households and businesses, potentially leading to economic growth stagnation and job losses.
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