Interest rates are rising, the annual debt servicing cost of the US government is close to $1 trillion, and the net interest expense as a share of total government revenues is near all-time high levels, see charts below.
The implication for markets is that higher rates are not only slowing down consumers and corporates through higher borrowing costs. Higher rates are also a drag on growth through higher debt servicing costs for the government. In other words, higher debt servicing costs are impacting not only consumers and corporates but also the government.
The bottom line is that when government debt levels are high, it is more difficult for interest rates to stay elevated for a long time because the negative impact on the economy of higher rates is also working through higher debt servicing costs for the government.
Source: CBO, Haver Analytics, Apollo Chief EconomistSource: Treasury, Haver Analytics, Apollo Chief Economist. Note: Estimated monthly cost is calculated as average interest rate total outstanding in marketable and non-marketable debt and includes public debt and intragovernmental holdings.Source: CBO, Haver Analytics, Apollo Chief EconomistSource: CBO, Haver Analytics, Apollo Chief Economist. Note: Interest rate assumptions by CBO: 2.1% in 2022 and 2.7% in 2023. Annual CBO data divided by 365.
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