Yellen’s Go-To Measure Shows U.S. Debt Is Still Getting Cheaper
- Interest outlays are lower than in 2020 even as yields surge
- Yellen says debt service cost is best guide to spending room
As rising government bond yields stir up angst on financial markets, one person who sounds unfazed is U.S. Treasury Secretary Janet Yellen. Her own go-to measure of debt costs is headed in the opposite direction.
Interest payments on the national debt fell last year, to $345 billion or 1.6% of gross domestic product. They’re on track to shrink further in 2021 -- even after all the pandemic spending, plus a debt-market selloff that’s taken 10-year Treasury yields to the highest in more than 12 months.
That’s because the government is rolling over bonds it sold years or decades ago, when its borrowing costs were higher. It would take Treasury yields averaging about 2.5% across all maturities -- well above where they are now -- to turn that trend around, according to calculations by Bloomberg Intelligence. Even then, U.S. debt service costs would be comfortably lower than they’ve been in the recent past.