U.S. could face ‘Liz Truss moment’ without action on debt mountain

livemint.com:

Subscribe to enjoy similar stories. The U.S. could face a sharp rise in borrowing costs and turmoil in financial markets as soon as next year if government debt continues to pile up rapidly, according to insurance giant Swiss Re’s group chief economist.

U.S. 10-year Treasury yields, which are a benchmark for longer-term borrowing, could rise above 5% in 2025 from around 4.4% currently, if the incoming administration prioritizes tax cuts and uses tariffs to offset lost revenues, Jerome Jean Haegeli said in an interview. “I don’t exclude next year that the U.S.

is going to have a Liz Truss moment for Treasurys" he said, referring to the British prime minister who resigned in 2022 after financial markets reacted negatively to the announcement of big tax cuts. At the time, U.K. government borrowing costs jumped, the pound sank to a record low against the U.S.

dollar and the Bank of England was forced to intervene to stabilize the market for government bonds. Economists have long worried that mounting debts could push up interest rates and threaten the U.S. government’s ability to borrow large sums during a major crisis, as it did during the Covid-19 pandemic.

But others argue that the U.S. likely has a greater capacity to sell its debts than most countries, since the dollar is the world’s reserve currency, and its government bonds have long been considered among the world’s safest investments. Swiss Re has $22.76 billion in U.S.

Treasury bonds, according to its third-quarter results announced earlier in November. Higher interest rates on government bonds are typically positive for insurers’ earnings, Haegeli said. The U.S.