The US public debt reaching $40.047 trillion as of August 18, 2026, increased pressure on bond yields in European markets as well as the country’s borrowing costs.
Movements in US Treasury securities spread to global financial markets, while Germany’s 10-year government bond yield rose to 3.275%, its highest level in 15 years.
US interest expenses grow
US debt stood at $5.8 trillion in August 2001. While the amount increased sevenfold in roughly a quarter of a century, the rise was driven by increased defense spending, the 2008 global financial crisis, support programs during the COVID-19 pandemic and tax cuts.
Annual interest payments by the federal government rose to approximately $1.1 trillion, surpassing health-care spending. Interest expenses became one of the largest items in the federal budget after Social Security spending.
Continued high budget deficits require the US Treasury to borrow large amounts from the market. Increased bond supply and concerns over the country’s fiscal outlook are pushing up yields, particularly on long-term debt.
The yield on the US 30-year Treasury bond reached 5.327% on August 18, its highest level since 2007. The US Treasury announced that it would raise the amount of buybacks of Treasury securities with maturities of 10 to 30 years from $2 billion to at least $4 billion per operation to support market liquidity in long-term bonds. Yields declined somewhat after the announcement.
US Treasuries serve as a benchmark for Europe
According to an analysis by the European Stability Mechanism, US Treasury securities are used as one of the key benchmarks for pricing other government bonds. Therefore, rising US Treasury supply and yields can lead investors to seek higher returns on other countries’ bonds as well.
German government bonds are among the main benchmark assets in the euro area. Changes in US yields can also spread through German bonds to the borrowing costs of other European countries.
Calculations covering the 1998-2025 period indicate that an unexpected $25 billion increase in the net supply of US Treasuries can raise Germany’s 10-year bond yield by 10 to 15 basis points. The effect is estimated to last approximately 10 trading days.
Pressure on yields in European markets eased somewhat after the US Treasury announced that it would increase its buybacks of long-term bonds.
Europe’s public debt is also rising
According to data from Eurostat, the total public debt of European Union countries reached €15.705 trillion at the end of the first quarter of 2026. The debt stock increased by approximately €327 billion over the three-month period.
In the EU, public debt as a share of gross domestic product rose from 81.8% in the fourth quarter of 2025 to 82.9% in the first quarter of 2026. Total public debt in the euro area rose to €14.243 trillion, while the debt-to-GDP ratio reached 88.9%.
Public debt-to-GDP ratios were measured at 143.5% in Greece, 138.9% in Italy, 117.6% in France, 109.1% in Belgium and 101.6% in Spain. The ratio stood at 64.4% in Germany, 91% in Portugal, 89.7% in Finland, 83.3% in Austria, 61.6% in Poland and 60.1% in Romania.
France ranks first in debt volume
France ranked first among Europe’s major economies in the first quarter of 2026, with public debt of €3.536 trillion. It was followed by Italy with €3.158 trillion, Germany with €2.902 trillion and Spain with €1.740 trillion.
Belgium’s public debt stood at approximately €707 billion, while Greece’s public debt was recorded at around €360 billion.
In countries with high debt ratios, bond yields remaining elevated for an extended period increases the cost of new borrowing and refinancing maturing debt. Rising spending on defense, infrastructure, energy, health care and the aging population in European countries is also increasing financing needs.
According to Barclays estimates, total bond issuance by euro area governments is expected to reach a record €1.54 trillion next year. The overlap between the US’s high borrowing needs and European governments’ growing financing demand increases the risk that long-term yields will remain elevated, particularly in countries with high public debt.
