Rising debt in all scenariosThe US debt ratio is clearly exposed to upside risks; it rises under every scenario considered. Even the most favorable growth and inflation scenario would push debt above 130% of GDP by 2032. At the other end, a combined growth and interest rate shock would push it towards 160% through lower nominal GDP and a weaker primary balance. Debt is also highly sensitive to interest rates, exceeding 145% under a rate shock. The relatively short maturity of US debt speeds up the transmission.
Long-term rates pushed higher by multiple factorsThe yield curve has shifted sharply upwards and is now positively sloped across all maturities. At the short end, the 2-year reflects expectations of tighter monetary policy fueled by the conflict in Iran. Further out, several factors, not all of them fiscal, are pushing long-term yields higher. Strong US growth is one. Another is intensifying competition for capital, with the AI boom creating large investment needs. Finally, a shift investor base, with institutional investors giving way to short-horizon buyers, is amplifying the trend.
