The national debt of the united states is under fresh pressure as the International Monetary Fund warns that Treasury bonds are losing part of the risk advantage that long made them the world’s top safe haven. In a report issued this past week, the IMF said rising supply is compressing the safety premium and pushing up borrowing costs globally. The warning lands as annual budget deficits stand at $2 trillion, interest costs reach $1 trillion a year, and the national debt of the united states climbs toward $39 trillion.
Treasury supply is rising fast
The IMF said the Treasury Department must keep issuing more fresh debt to finance the widening gap, and that pace is testing the appetite of bond investors. The result has been higher yields, with the broader debt outlook expected to worsen further because of the Iran war and higher defense spending. The report said the spread between AAA-rated corporate bond yields and Treasury yields has compressed, a sign that Treasury bonds are no longer standing apart as clearly as they once did.
The national debt of the united states is also competing with a record wave of corporate borrowing, especially from so-called AI hyperscalers spending hundreds of billions a year. That competition is adding pressure in the bond market, where the IMF said the international “convenience yield” of Treasuries has recently turned negative. In the report’s words, Treasuries now offer a higher yield than the synthetic-dollar equivalents for hedged G10 sovereign bonds.
Market demand is shifting
The erosion of the national debt of the united states can also be seen in where investors are putting money now. While demand for Treasuries has weakened, demand has surged for debt issued by sovereign, supranational and agency borrowers such as the World Bank and the European Investment Bank. A $4 billion auction for three-year European Investment Bank bonds drew more than $33 billion of orders this past week, and the yield came in just 0. 04 percentage points above comparable Treasuries.
In the secondary market, SSA dollar bond yield spreads versus Treasuries have also narrowed to a few hundredths of a percentage point. The IMF said this shift shows how the national debt of the united states is facing stiffer competition even from borrowers that once traded at wider spreads.
Jason Ma, weekend editor at Fortune, wrote that the pressure on Treasury bonds reflects a changing market backdrop. Torsten Slok, chief economist at Apollo, said in a note on Friday that hedge funds now own a record-high 8% of US Treasuries, and that combined repo and prime brokerage borrowing exceeding $6 trillion could trigger shockwaves if leveraged positions unwind suddenly.
What the IMF says comes next
The IMF said the national debt of the united states sits at 100% of GDP and is projected to top 150% by 2055 as Social Security and Medicare outlays rise, citing the Congressional Budget Office. It called the arithmetic “inescapable” and urged Washington to stabilize the debt path by acting on both revenue and expenditures, including entitlement programs.
The fund said the window for orderly fiscal adjustment is narrowing. For the national debt of the united states, that leaves policy makers with less room and markets with less patience, while the next moves in borrowing costs will be watched closely in ET trading hours.
