Interest payments on the U.S. national debt are on the rise againNet interest payments on the debt are estimated to total $393.5 billion this fiscal year, or 8.7% of all federal outlays. (The government projects it will pay out a total of $593.1 billion in interest in fiscal 2019, which ends Sept. 30, but that includes interest credited to Social Security and other government trust funds.) By comparison, debt service was more than 15% of federal outlays in the mid-1990s. The share has fallen partly because lower rates have held down interest payments, but also because outlays have risen substantially, up about 29% over the past decade.
Interest rates on U.S. public debt, once at historic low, now heading higherUntil recently, the U.S. government was paying historically low rates on its debt, largely because of the Federal Reserve’s efforts to keep interest rates low during and after the Great Recession. But interest rates on federal debt have begun rising again. In fiscal 2018, the average interest rate on the public debt was 2.492%, compared with 2.232% in fiscal 2016, according to the Treasury Department. In June, the average interest rate had risen to 2.567%.
You might think such low rates would put off investors, but U.S. government debt is considered to carry very little risk, and historically demand for it has remained strong. Recently, though, investor demand for Treasuries has appeared to soften, which means the government – and, ultimately, taxpayers – could end up having to pay higher interest rates.
BONUS FACT: Though many may believe that “China owns our debt,” mainland China only held about 5% of the total debt as of May, or about $1.11 trillion. Hong Kong, a “special administrative region” of China, held another $204 billion. China was the top foreign holder of Treasury securities, ahead of Japan, which held roughly $1.1 trillion.
