US economy faces debt servicing surge and corporate bond supply shortage

The United States is facing significant economic shifts driven by rising national debt and a mismatch in the corporate bond market. US national debt has surpassed $40 trillion, reaching 127 percent of GDP. Interest expenses on this debt are increasing by 14 percent annually and are projected by the Congressional Budget Office to exceed $1 trillion in 2026, surpassing the annual military budget.

Simultaneously, a tension has emerged in the investment-grade corporate bond market. Institutional investors, such as pension funds and insurance companies, are seeking long-dated bonds with maturities exceeding 30 years to match long-term liabilities. However, corporate issuance of these long-dated instruments has collapsed, accounting for only 11 percent of high-grade sales, down from 15 percent a year prior. Despite this low supply, demand remains high; recent deals from companies like Eli Lilly and Aon Inc. saw massive oversubscription.

These combined factors—the escalating cost of servicing sovereign debt and the scarcity of long-term corporate debt—are influencing global asset pricing and challenging the traditional perception of US Treasuries as a risk-free benchmark.