Norway's Sovereign Wealth Fund has decided to reduce its investments in U.S. government bonds by $80 billion. This fund, the largest pension fund in the world, had invested about $215 billion in U.S. bonds by the end of June 2023.
Increase in U.S. National Debt and Global Concerns
Global investors have become increasingly suspicious of the rise in U.S. national debt, which surpassed $40 trillion in August 2023. This week, the yield on 30-year U.S. bonds reached nearly 5.4%, the highest level since 2007. Countries with high debt, such as Japan, which has a debt exceeding 200% of its GDP, are facing rising borrowing costs. This situation also includes Italy, France, and the United Kingdom.
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Germany's Better Situation and High U.S. Costs
Germany is in a better position, with a debt-to-GDP ratio of about 65%. However, the country is also expected to see this ratio rise to 80% due to the need to modernize its armed forces and infrastructure. Annual U.S. costs for interest payments have exceeded $1 trillion, which is more than $3 billion per day. Starting in 2024, Washington will spend more on servicing its debt than on its entire military.
According to calculations, U.S. national debt has increased by about 650% over the past 30 years, rising from $5.2 trillion in 1996 to $40 trillion in the summer of 2023. While the U.S. budget deficit is expected to approach 6% this year, Treasury Secretary Scott Basset has set a goal to halve it, which seems unrealistic due to war costs with Iran and reduced revenue from tax cuts.
Some analysts believe that the bond market now needs more discipline, and governments have shown little willingness to cut spending. Despite all the challenges, most economists believe that there is currently no way for investors to bypass the U.S. market.
Ultimately, despite concerns over rising interest rates in capital markets, large technology companies have created new competition for government bonds due to funding for artificial intelligence infrastructure.
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