Total U.S. government debt has exceeded $40 trillion for the first time, according to data tracking public finances across the Group of Seven (G7) nations. The milestone comes as major economies face increased spending requirements for defense, aging populations, and climate change initiatives. Consequently, 30-year U.S. Treasury yields reached their highest levels since 2007, while borrowing costs in Japan and Germany have also hit multi-decade highs.
The increase in debt follows a series of global events including the 2008 financial crisis, the 2020 pandemic, and more recent conflicts involving Russia and Iran. Central banks have raised interest rates to combat inflation, which in turn has increased the cost for governments to service their existing debt. In 2024, interest payments across OECD countries, including the U.S., surpassed total spending on national defense.
To manage rising costs, several governments have shifted toward selling bonds with shorter maturities. While this reduces immediate interest rates, it requires more frequent refinancing, which exposes budgets to future rate hikes. In Japan, benchmark 10-year yields are approaching 3% for the first time since the mid-1990s, while France faces deteriorating public finances following a 2024 election that has complicated efforts to reduce its budget deficit.
The scale of the issue is reflected in the U.S. surpassing $40 trillion in total debt, while Japan’s debt now exceeds double its annual economic output. In the Eurozone, the difference in borrowing costs between nations like Italy and Germany has fluctuated, with Italy’s risk premium reaching its lowest since 2008 due to political stability, while France’s costs have risen. A report commissioned by the French government in July warned that without spending cuts, the nation's finances will see a sharp deterioration through the end of the decade.
The upward pressure on yields also impacts global investment flows. If Japanese investors, who have traditionally supported U.S. and European debt markets, begin moving capital back to Japan due to higher domestic yields, it could further destabilize international bond markets. Looking ahead, France faces an election test next year that may determine its fiscal direction, while market participants are monitoring communication from new Federal Reserve Chairman Kevin Warsh for signals on future U.S. monetary policy.