The federal debt bill could jump by more than $20 billion after the government borrowing rate shot above 4 per cent on bets of aggressive interest rate rises by the US Federal Reserve.
The federal debt bill is poised to jump by more than $20 billion after the government borrowing rate shot above 4 per cent on bets of aggressive interest rate rises by the US Federal Reserve.Treasury’s Pre-election Economic and Fiscal Outlook assumed the government’s bond yield would average a relatively low 2.3 per cent through to 2025But that forecast now looks increasingly misplaced as central banks respond aggressively to rising inflation and bond investors demand higher interest rates.
Treasury Secretary Steven Kennedy said last week, “since budget there has been a significant increase in the interest rate on government debt”. The previous fiscal strategy of purely relying on the economy to grow faster than bond yields to reduce the debt-to-GDP ratio was no longer the “prudent” course, he said.
Mr Anthony warned combined Commonwealth and state net debt could almost double to 55 per cent of GDP by the early 2040s.“Nor does it provide any buffer against other national emergencies and global risks.”Stocks around the world have fallen heavily as global borrowing costs have jumped in reaction to surging inflation.
The bond market is pricing in a US recession after the yield curve inverted – which means the projected interest rate falls, not rises, over time because of expectations the economy will shrink.government debt could end up more than $12 billion higher than forecast by 2025-26, if government borrowing costs remained around 3 per cent, instead of the 2.3 per cent assumed.If sustained, the gross debt bill could rise by more than $20 billion over the next four years or about 1 per cent of GDP.
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