What are the implications of increasing government borrowing?
US Treasury securities now make up approximately half of all debt in the American bond market, a development some economists warn is troubling for long-term financial health and economic growth.
According to a recent analysis by Torsten Sløk, chief economist at Apollo Global Management, the federal government’s rising share of the bond market points to an imbalance in credit distribution. “This is not healthy,” Sløk wrote. “Half of credit issued in the economy should not be going to the government.”
Sløk’s comments reflect broader investor unease as the US grapples with an expanding budget deficit. USA Today reported that the deficit, largely a result of federal spending outpacing tax revenue, has led to increased government borrowing through the issuance of Treasury bonds and notes. As supply of these securities grows, the government often must offer higher yields to attract investors—a dynamic that can drive up borrowing costs across the economy.
The Congressional Budget Office has estimated that proposed tax legislation under President Trump could widen the deficit by $2.4 trillion over the next decade. If passed, analysts warn, such measures could further intensify the federal government’s dependence on debt financing.
Because US Treasurys serve as a benchmark for other types of credit, including mortgages and corporate bonds, changes in their yields can affect borrowing conditions across the economy. Sløk noted that this could divert investment away from businesses and consumers.
“The consequence is that investors need to allocate more and more dollars to finance the government rather than financing growth in the economy through loans to firms and consumers,” he wrote.
Roughly one-third of outstanding Treasury debt is held by foreign investors, according to the analysis. Some analysts have expressed concern that rising debt levels could lead to increased influence by investors, including so-called “bond vigilantes” who may demand changes to fiscal policy in exchange for continued investment.
The report highlights ongoing discussion in financial markets over the sustainability of US fiscal policy and its effect on credit markets.
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