Why is US debt rising to the level it was almost 20 years ago?

BarcelonaUS 30-year Treasury bonds have soared their yield to above 5% (5.07%), the highest level in almost two decades. This trend—the movement between prices and yields is inverse, with lower prices leading to higher interest rates and higher prices leading to lower yields—means that money is fleeing these assets, meaning demand is falling, whereas until recently they were considered a safe haven in times of uncertainty. The US must pay more, that is, pay more, to raise funds to finance itself.

This effect already began to occur with the Trump administration's tariff announcements and has been exacerbated by the fact that Congress approved a bill this Thursday that provides for tax cuts of up to $3 trillion. Neither the initial market reaction to the customs charges, which caused Trump to moderate his desire to raise revenue out of fear of provoking an economic crisis in his country, nor the current evolution of the debt were effects expected by the US president. Quite the opposite.

Investors are concerned that this tax cut will lead to an increase in the public deficit, which stands at $1.05 trillion, and the national debt, which already exceeds the gigantic figure of $36.2 trillion, more than 124% of all the wealth generated by the country. Analysts estimate that the planned cuts could increase public deficits by some $2.7 trillion over a decade. Investors are mindful of the disaster caused by British Prime Minister Liz Truss with her tax cuts in 2022, which collapsed the value of the pound sterling. As a result, she became the UK's longest-serving Prime Minister, serving from 5 September to 25 October 2022.

Credit rating

Another element that unnerved investors was the downgrade of the US credit rating by Moody's on Wednesday, something that hadn't happened since 1917. The world's leading power has lost its best-in-class rating, the highest credit rating for a country. And although the rating imposed on it is still high and far from the risk of default, it represents a worrying milestone. It is now surpassed by the debts of Germany, Australia, Canada, and Switzerland, and equal to those of Austria and Finland.

The fiscal plan, dubbed by Trump as "the big, beautiful bill," was approved with a majority of just one vote after a long, late-night session in Spain. It also came after conservative Republican congressmen, opposed to the legislation because they believe it increases the deficit, held several meetings with the White House to reach an agreement. The text, which will now go to the Senate, in addition to tax cuts, provides for a $4 trillion increase in the debt ceiling and a reduction in social spending.

Experts predict that US Treasury bond yields could continue to fluctuate between 4% and 5% throughout 2025. Markets will have to assimilate the new fiscal policies and the evolution of the economy. Some analysts also anticipate possible interest rate cuts by the Federal Reserve, although this will depend on the evolution of inflation and economic growth. This is Trump's wish, which central bank chairman Jerome Powell has so far refused to comply with.