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Rich countries spent years treating debt as cheap and forgiving. That era is ending just as their borrowing needs are reaching historic highs. In “Bonds-and-chain”, The Economist argues that rising bond yields, persistent deficits and shorter debt maturities are combining into a dangerous feedback loop: higher interest bills enlarge deficits, which require more borrowing, which can push yields higher still.

The old debt is becoming expensive

Government debt in advanced economies is close to 110% of GDP, up from roughly 70% in the early 2000s. Yet governments are not merely carrying larger balances. They must also refinance them in a much harsher market. The median yield on rich countries’ ten-year bonds has climbed above 4%, around five times its 2015-21 average. In 2007, when yields were last near today’s level, governments sold debt worth about 11% of GDP. This year they will need to issue more than twice that share to cover new deficits and replace bonds written when rates were far lower.

The effect is only beginning to appear in public budgets because much outstanding debt still carries old, low coupons. Interest payments already exceed 3% of GDP across the OECD and approach 5% in America. If US borrowing costs remain near current levels, annual federal interest payments could almost triple to \$2.7trn by the end of the decade - more than current spending on Medicare or Social Security.

Long-term debt has become especially costly. Investors now demand a larger “term premium” to lend for decades rather than months. America’s traditional advantage has also faded: research cited by the article suggests that by July investors were no longer accepting meaningfully lower returns simply because Treasuries were unusually safe and easy to trade. That lost privilege matters when Washington must raise trillions of dollars each year.

Several structural changes may keep yields high. The AI investment boom is competing with governments for capital. Central banks are shrinking the bond portfolios they accumulated during the low-inflation years. Defined-benefit pension funds, once reliable buyers of long-dated bonds, are giving way to plans that invest more heavily in riskier assets. The marginal buyer is therefore more price-sensitive and demands better compensation.

Shorter borrowing delays the reckoning

Governments could reduce the pressure by borrowing less, but most are moving in the other direction. America has extended tax cuts and added new breaks; Japan is backing large investments while cutting consumption tax; and France is struggling to restrain spending. Rather than confront deficits, finance ministries are changing how they borrow.

Since 2023 rich countries have issued more short-term bills than fixed-rate bonds. Nearly a quarter of America’s debt is now in Treasury bills, and its average maturity is less than six years. Borrowing short can be sensible if today’s long-term yields soon fall. But it also forces governments to refinance sooner. A third of OECD fixed-rate debt matures by 2028 and nearly half by 2030, while oil above \$100 a barrel and stubborn core inflation make rapid rate cuts less likely.

The arithmetic is already severe. The Economist estimates that, at current five-year yields and projected nominal growth, Britain would need a primary budget surplus of about 1.5% of GDP merely to stabilise its debt ratio. Italy would need 1.4%, France 1.2% and America 1.0%. Because America currently runs a primary deficit near 4%, its required adjustment is almost five percentage points of GDP. France faces a gap of roughly four points and has less room to raise taxes without damaging growth.

The danger is not a single dramatic default but a slow loss of fiscal freedom. Short maturities can postpone the cost, not erase it. As cheap bonds roll off, interest bills rise; larger deficits require still more issuance; and nervous investors may demand even higher yields. Each delay makes the eventual tax increases or spending cuts more painful. The article’s warning is simple: rich countries have entered a debt reckoning, and time is now working against them.

Source: The Economist, September 19th 2026, “Bonds-and-chain”, Finance & economics, pp. 65-67; listed in the contents as “Rich-world debt”.