The explosion of U.S. debt is wiping out the ‘safety premium’ of Treasury bonds, and time is running out for an orderly fiscal solution, IMF warns

Soaring U.S. debt is causing Treasury bonds to lose their risk advantage over other securities, making it more expensive to borrow money, the International Monetary Fund warned.

Treasuries have long enjoyed the status as the world’s top safe haven asset. But annual budget deficits are now at $2 trillion, rapidly piling on to the $39 trillion national debt total with interest costs alone reaching $1 trillion a year.

That means the Treasury Department must issue more and more fresh debt, testing the appetites of bond investors who have already shown signs of waning demand. The result has been higher yields, with the Iran war and higher defense spending expected to worsen the debt outlook further.

“The increase in the US Treasury security supply is compressing the safety premium that US Treasuries have traditionally commanded—an erosion that pushes up borrowing costs globally,” the IMF said in a report issued this past week....