Government borrowing costs across the Group of Seven economies have surged to multi-decade highs as debt levels rise and fiscal pressures intensify. The U.S. national debt exceeded $40 trillion for the first time, while 30-year Treasury yields climbed to their highest since 2007. Japan’s borrowing costs approached three-decade peaks, with its 10-year bond yield nearing 3%—a level not seen since the mid-1990s—amid debt levels more than double its economic output, the highest among developed nations.
In Europe, Germany’s borrowing costs jumped to their highest since 2011, reflecting broader fiscal strains. The country, traditionally a proponent of fiscal restraint, has significantly increased borrowing to fund defense investments amid heightened security concerns following Russia’s invasion of Ukraine. Meanwhile, France faces mounting fiscal challenges after a 2024 election left its political landscape fractured, slowing efforts to reduce the budget deficit. An independent report commissioned by the government in July warned of a sharp deterioration in public finances unless spending is reined in ahead of next year’s election.
Across the OECD, interest payments on government debt have surpassed defense spending in 2024, a shift driven by aging populations, climate-related spending, and rising defense costs. The term premium—a measure of long-term borrowing costs—has climbed to its highest level in over a decade. Italy’s debt risk premium, however, has fallen to its lowest since 2008, reflecting improved investor confidence in its fiscal trajectory.
The surge in borrowing costs coincides with elevated global inflation risks, exacerbated by geopolitical tensions, including the conflict in Ukraine and the broader implications of the Iran war. Additionally, increased borrowing by AI infrastructure providers has added to market strain, further pressuring government bond markets.
