US government net interest costs rise to 4% of GDP, highest in 10 years

The US federal government is on track to spend roughly $970 billion on interest payments in fiscal year 2025. That’s not building roads, funding schools, or equipping the military. That’s just the cost of servicing existing debt. Net interest costs have surged to 3.6% of GDP and are projected to hit 4%, a level not seen in a decade. The kicker: corporate America’s interest burden has moved in the exact opposite direction, falling to just 0.4% of GDP. A tale of two borrowers The divergence traces back to 2020 and 2021, when the Federal Reserve pinned interest rates near zero in response to the pandemic. Corporate treasurers saw the window and dove through it, locking in historically cheap fixed-rate debt and extending maturities as far as lenders would allow. The US Treasury, meanwhile, did not meaningfully extend the maturity profile of its debt during the same period. Instead of issuing more long-term bonds at rock-bottom rates, the government continued rolling short-duration securities. When the Fed began its aggressive rate-hiking cycle in 2022, the Treasury found itself refinancing at dramatically higher costs. Torsten Slok, chief economist at Apollo Global Management, has high...