The US national debt crossed $40 trillion for the first time, driven by persistent deficit spending that shows no sign of slowing. Bond investors are already responding by demanding higher interest rates to compensate for the growing supply of government debt. The milestone arrives even as policymakers have described efforts to bring spending under control.
Higher interest rates on government debt pull capital away from equities and push up borrowing costs across the economy, pressuring corporate earnings and valuations. Treasury yields rising on fiscal concerns directly hurt long-duration bond funds and rate-sensitive sectors like utilities and real estate. Portfolios heavy in growth stocks or long-term bonds are the most exposed.
Jul 30: Federal Reserve rate decision. Aug 6: Treasury quarterly refunding announcement, which sets how much new debt the government will sell. Next CPI release, approximately Aug 12.
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