On September 14th the yield on ten-year American Treasuries exceeded 5% for the first time in years. The median yield on wealthy countries’ ten-year government bonds has climbed to almost 4%, its highest in more than 15 years and roughly five times its average in 2015-21 (see chart 1). ACROSS THE rich world, investors are making governments pay up. Bond yields are up in Britain, France, Germany and Japan.
Interest payments already consume more than 3% of GDP across the OECD, a club of mostly rich countries, and nearly 5% in America (see chart 2). If borrowing costs stay close to where they are today, Uncle Sam’s annual interest payments could nearly triple to $2.7trn by the end of the decade, according to the Committee for a Responsible Federal Budget, a non-partisan think-tank. They kept paring back their holdings of long-dated bonds even after most central banks in large rich economies began cutting rates in 2024 (yields climb as bond prices fall).
Much of the debt stock still carries the low rates of the old era. As that debt matures, the bill will climb. That is more than America spends on Medicare (to keep old people healthy) or Social Security (to pay them pensions). Yields in short-term government debt mostly reflect where investors think central-bank rates are headed. Lend for decades, however, and they are less willing to look past inflation risk and the state of the public finances.
Gross public debt as a share of GDP in advanced economies stands near 110%, up from around 70% in the early 2000s. America is expected to run a deficit of around 6% of GDP this year and France of more than 5%. In 2007, when the median yield on rich-world bonds was around today’s level, governments had to sell debt worth only around 11% of GDP. In 2025 governments had to cough up about two percentage points more for their ten-year bonds than they had for those being replaced. In America, Donald Trump’s mammoth tax-and-spending law of 2025 made most of his earlier tax cuts permanent and added new breaks, increasing the deficit by trillions of dollars over the next decade.
“The marginal buyer today is the price-sensitive investor,” says Serdar Celik, head of the capital-markets unit at the OECD. More worrying, borrowing costs are rising at a time when countries’ debts are higher than ever. In America it has more than doubled over that period; in Britain it has nearly tripled. There is little appetite for belt-tightening. Throughout much of the 2010s politicians could afford to dismiss warnings of a debt reckoning, thanks to rock-bottom interest rates. Now rates are rising. On September 16th the Federal Reserve raised its benchmark rate by a quarter of a percentage point. The European Central Bank (ECB) did so the week before. And the bond market is signalling that the era of cheap government finance is over. Big borrowers are about to discover just how painful those debt piles can be when interest rates can no longer be ignored. Governments have dealt both with high yields and with high borrowing in the past. But, at least in recent decades, not at the same time. This year they will have to peddle more than twice as much, to finance those wide deficits and to replace debt issued when rates were far lower. There are reasons to think that high long-term yields are here to stay. The multitrillion-dollar investment boom in artificial-intelligence infrastructure needs capital, and is competing with governments for investors’ attention. Central banks that spent years soaking up government bonds to help avert deflation are running down their holdings. Defined-benefit pension funds, which bought lots of long-dated government debt to finance payouts based on participants’ final salaries, are being replaced by defined-contribution ones that try to juice future pensioners’ returns by investing in riskier assets such as stocks. Those buyers are thus demanding more compensation. With yields higher still this year, the next wave of debt will be yet more expensive. The best way out of a hole is, of course, to stop digging—ie, borrow less. Alas, politicians are in a digging mood. In Japan, Takaichi Sanae, the prime minister, is putting the state behind a vast investment push in semiconductors and AI while cutting the consumption tax. France has struggled to rein in public spending as its population ages and debt-service costs mount.
At the same time, some previously reliable buyers are disappearing.
