US Government Net Interest Costs Soar to Decade-High

The US federal government's net interest costs have surged to 3.6% of GDP and are projected to hit 4%, its highest level in a decade.

These costs are expected to reach $970 billion in fiscal year 2025, surpassing national defense spending as the second-largest line item in the federal budget after Social Security.

The divergence in interest rates between corporate America and the government is largely due to the Federal Reserve's decision to pin interest rates near zero during the pandemic, which allowed companies to lock in historically cheap fixed-rate debt.

However, the Treasury did not extend its debt maturity profile during this period, resulting in a shorter-duration portfolio that has left it vulnerable to higher costs when refinancing.