Advanced Economies Paid $3.3 Trillion in Interest, More Than AI or Defence
The Institute of International Finance estimates that over the past year advanced economies paid more than $3.3 trillion in interest on internationally traded government bonds alone. Global spending on AI came to about $2.6 trillion. Defence was $3.1 trillion. Clean energy was $2.3 trillion. The rich world now spends more servicing its existing debt than it spends on any of the things it argues about building.
Per Reuters, Alun John, Dhara Ranasinghe, Ankur Banerjee and Gertrude Chavez-Dreyfuss report that the US 10-year yield reached 5.34% on Thursday, its highest since 2002, after the biggest quarterly rise in yields this century and Treasuries' worst quarter since 1994. Buyers stepped in during the late US morning and the yield settled near 5.26%, though analysts see scope for more selling.
The pressure is everywhere at once. Britain's 30-year crossed 6% for the first time since 1998. French 10-year costs hit their highest since 2002 and traded near 5% after the worst quarterly performance since 1987, with the France to Germany spread at its widest since the eurozone debt crisis and the cost of insuring French debt the highest since 2013. The ECB is now fielding questions about whether it would support the French bond market, which market participants consider unlikely for now. Japan recorded an unprecedented fifth consecutive quarter of double-digit yield gains.
The interest figure is what turns this from a market story into a fiscal one. Every basis point reprices as debt rolls, and the $3.3 trillion was incurred at yields lower than today's. France is presenting a 2027 budget on Thursday that may not survive parliament, which is the political form of the same problem: the belt-tightening required to stabilise the arithmetic is the belt-tightening governments cannot pass.
There is a real counterargument and it is holding for now. Factory activity expanded across Europe and Asia last month, helped by AI investment, and Julius Baer's Afonso Borges says stronger growth has convinced markets the economy can sustain higher rates for longer. Equities have held up while bonds take the damage. HSBC's Fred Neumann frames the demand differently, arguing markets are responding to years of above-target inflation and will keep demanding a term premium until tightening is actually delivered. Traders now expect at least three more Fed hikes before mid-2027 and three more ECB increases over the same period.
The strain is visible underneath the strong aggregate numbers. TwentyFour's Danny Zaid notes the economy is K-shaped, with the lower cohort struggling and needing relief from high oil prices, and warns that tightening financial conditions raise the risk of a slowdown. UK house prices are growing at their slowest pace in nearly two years. An index of junk bond credit default swaps hit its highest since early April.
What to watch is the French budget vote and whether the ECB is drawn in. A central bank buying one member state's debt to hold a spread is the point at which fiscal arithmetic becomes monetary policy, and it would be the second major economy this quarter to reach for that tool after Treasury's buyback programme failed to move US yields.