The financial world is closely watching a major shift in global investment strategy as Norway’s sovereign wealth fund plans to significantly reduce its holdings in US government bonds. According to Reuters, the fund intends to cut its $215 billion US bond portfolio—valued at €186 billion as of late June—by as much as $80 billion. This move reflects growing unease among global investors regarding the United States’ escalating debt levels, which recently exceeded the $40 trillion milestone in August.
Market anxiety is further evidenced by the yield on 30-year US Treasury bonds, which climbed to nearly 5.4% this week, marking the highest level seen since 2007. While heavily indebted nations such as Japan, Italy, France, and the UK face rising borrowing costs, Germany currently maintains a healthier position with a debt-to-GDP ratio of approximately 65%. However, Berlin anticipates this figure will rise toward 80% over the coming years to finance military and infrastructure modernization.
The cost of servicing American debt has reached unprecedented heights. Interest payments now exceed $1 trillion annually, amounting to more than $3 billion per day. Since 2024, Washington has dedicated more budget to debt service than to its entire military apparatus. The Congressional Budget Office highlights that the national debt has surged by roughly 650% over the past three decades, growing from $5.2 trillion in 1996 to over $40 trillion today.
Treasury Secretary Scott Bessent has proposed reducing the current budget deficit, projected near 6%, by half. Analysts, however, view this target as unrealistic given the financial strain of the ongoing conflict in Iran, revenue losses from corporate tax cuts, and tariffs invalidated by the Supreme Court. Carsten Roemheld, a capital market strategist at Fidelity International, described the path ahead as extremely challenging, noting rising nervousness within the administration about the sustainability of current trajectories.
In response to market pressures, Bessent announced a buyback program on September 9, tripling the volume of long-term bond repurchases to $6 billion. Critics argue this measure is insufficient to curb yields long-term. Kim Crawford of JPMorgan Asset Management emphasized that bond markets now demand fiscal discipline, which many governments have been reluctant to provide.
Despite these headwinds, most economists agree that the US remains the dominant capital market with no immediate alternative. Carsten Brzeski of ING Bank noted that European markets and emerging economies like China are neither capable nor willing to replace US Treasuries. Roemheld added that while the US is unlikely to default due to its ability to print money, such actions could eventually undermine confidence in the dollar.
Compounding the issue is the rapid emergence of AI-related corporate borrowing as a competitor for investor capital. Robert Sockin of PGIM and Roemheld point out that major technology firms are issuing substantial debt to fund infrastructure, with the “hyperscalers” alone raising over $800 billion in corporate bonds this year. This creates direct competition for government debt, as investors find attractive returns in high-quality corporate bonds from companies like Alphabet and Microsoft.
Germany aiming for 80% debt-to-GDP while the US blows past $40 trillion. The transatlantic divergence is getting wild.
Tech companies raising $800 billion is huge competition for Treasuries. I wonder if that will keep government yields artificially low.
Is the buyback program really enough? $6 billion sounds like a drop in the ocean compared to daily interest costs.
Norway selling off bonds is a loud signal. If they are worried, shouldn’t we be paying closer attention to this shift?
It is quite frightening that debt service now exceeds the military budget. What does that say about our priorities?