US national debt passes $40tn after doubling in a decade

Long-term borrowing costs in the US eased on Wednesday after the Treasury department announced it would buy back more debt.

The move came after the interest rate on 30-year bonds, which are a type of debt used to raise funds from investors, hit 5.34% on Tuesday - the highest level in almost 20 years.

The high rates, known as yields, affect the rate the US government and major corporations can borrow money at, but also impact borrowing costs consumers pay on the likes of mortgages, car loans and credit cards.

The recent surge in bond yields has been driven by rising oil prices caused by the US-Iran war, with investors concerned over inflation.

There are also fears over government debt and the huge amounts of cash being borrowed by tech firms to develop Artificial Intelligence (AI), with the timeline and level of returns on investment uncertain.

The Treasury Department said its intervention reflected its "desire to provide greater liquidity support" for longer-term bonds.

It announced it would increase its buyback operations by "at least double" from $2bn to $4bn and will be effective from 9 September to 4 November.

The rate on borrowing costs over 30 years eased on the back of the move to 5.18%.

John Canavan, lead analyst at Oxford Economics, said the Treasury's decision to increase purchases appeared to be an "attempt to provide relief" on long-term borrowing costs, which had been under "significant pressure from rising oil prices, inflation risks, and heavy supply due to global sovereign and corporate borrowing needs".

But he said given the size of outstanding Treasury debt, the increase in buybacks from the government was "unlikely to provide meaningful long-term relief".

Rene Albrecht, senior analyst at DZ Bank in Germany, said the US government feared the "pain of 5% or higher yields" over the long term not just because it raised borrowing costs for the government, but also the private sector.

"It's only three months until the midterm elections," Albrecht said. "They [the Treasury] have had to grab into the toolkit in order to get a hand on the recent rise in yields."

But economist Mohamed A. El-Erian said that, beyond the bond market reaction to push down longer-term borrowing costs, the move by the Trump administration was about the possibility of a broader strategy to keep control of interest rates - known as "yield curve control".

While the move can help bring down longer-end yields in the immediate and short term, and thereby help lower mortgage and other borrowing costs, "it risks collateral damage and unintended consequences", he added in a social media post. , external