The U.S. bond market has become more volatile recently, reflecting the U.S. government’s debt problems and the risk of a global recession.
Risks of a United States debt crisis
The United States Government debt is massive and will total $3.18 trillion by the end of July 2023, representing 123 per cent of GDP, the highest level ever. The interest burden on the United States Government has been increasing in the face of high inflation. If interest rates continue to rise, the fiscal deficit of the United States Government will widen further and the risk of a debt crisis will intensify.
Risk of global recession
The Federal Reserve is raising interest rates and curtailing spending to combat inflation. This will lead to a tightening of global liquidity and could trigger a global recession. If there is a global recession, the United States economy will also be affected, and the fiscal revenue of the United States Government will fall, further exacerbating the risk of a debt crisis.