America may soon be spending more on debt service than defence

THE BOND market is sending a hopeful message about the strength of the American economy—and, perhaps, raising alarm about America’s unsustainable finances. The news is coming via on long-term bonds. When the Federal Reserve started raising its benchmark federal-funds rate in March 2022, long-term interest rates rose with it. This continued fairly steadily until the end of last year, when rates flattened out. Then in May, to the surprise of many investors, long-term rates began climbing once more. They show no sign of slowing. On October 11th the yield on ten-year Treasury bonds hit 4.7%, near a 16-year high.Because bond prices and yields are inversely related, this is bad for bond investors, who are suffering “the greatest bond bear market of all time”, according to Bank of America. But it is also bad for Uncle Sam. When bond yields rise, the cost of —now $26trn and growing—also goes up. In the fiscal year ending on September 30th 2023, interest payments on America’s debt totalled some $660bn, up from $475bn the previous year. As recently as May 2022 the Congressional Budget Office (CBO), a non-partisan number-cruncher, had forecast such costs would be $442bn, or 33% lower.